Japan Country profile

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Japan has been stuck in secular stagnation for the last two decades. Low, albeit rising, female participation in the workforce, strong household emphasis on savings over consumption and rigid labour market policies all constrain current and future economic growth. The IMF estimates the economy grew 0.9% in 2019 and projects it to expand around 0.5% per annum in coming years.

Prime Minister Shinzō Abe’s tenure has included several policies to revive the economy. The set of policies, known as Abenomics, include accommodative monetary policy, fiscal stimulus and structural reforms. So far, the polices have been successful at propping up asset prices and weakening the yen. But a weaker yen will not be enough for Japanese firms to compete against lower cost manufacturing producers in Asia. Structural reforms related to liberalising the agriculture sector and encouraging female workforce participation are progressing.

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Weak economic growth stunts growth in Japan’s per capita income. Japan’s per capita income was 6% higher than that of the US in 2000. But fast forward 18 years and Japanese incomes are now 37% lower than that of the US. Japan’s rigid labour laws have made income inequality more of an issue, as the wealth gap between elderly generations and the youth widens. But overall per capita income remains high; the IMF expect per capita income levels to exceed US$50,500 by 2024.

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