Japan is struggling with its economy as the country hosts the yearly meeting of the G-7 industrialized nations.
Japan has the world’s third-largest economy, behind the U.S. and China. Many countries copied Japan when it had a strong and growing economy.
Japan has been dealing with deflation for many years. Deflation is “a decrease in the amount of available money or credit in an economy that causes prices to go down.” Deflation can often cause a recession.
The population in Japan is growing older and the country is not diverse. Most people in the country are ethnic Japanese. Last year, people in Japan criticized Miss Japan, Ariana Miyamoto, for not being “Japanese enough.” She has a Japanese mother and a black American father.
Many Japanese also do not support mass immigration, which other countries have used to make up for, or balance, the effects of a declining and aging population.
Savings vs. spending
Takuji Okubo is the managing director of Japan Macro Advisors. He says Japanese Prime Minister Shinzo Abe does not understand problems the labor market or with pensions. He says the prime minister “has been just unable to tackle any reforms.”
Many of Japan’s public pension plans do not have enough money to make payments. This has caused many families to believe the plans will fail, so they save a lot of money.
The average Japanese family has about $164,000 in savings. That is much higher than that of families in other developed countries.
Young Japanese working in their first jobs do not earn a lot of money, so they do not have much to spend. And people who are retired and have savings are worried about their monthly payments, so they are not spending money either.
Manabu Goto operates a small, 50-year-old food store in Tokyo.
Goto has opened the store on weekends and added more products. He wants to attract more customers and convince them to spend more money.
However, he says the policies of the prime minister have “failed to get citizens to spend because people are uncertain about the future. So the government needs to try something else.”
Structural changes are needed
Martin Schulz is a senior economist at the Fujitsu Research Institute. He says the Japanese “market is shrinking overall. It makes it very difficult to get it moving again. This requires some major structural changes and these take time.”
Among the needed changes, he says, are: to open the economy, to change the structure of the farming industry and to help Japanese companies invest in Southeast Asia. He says these changes will help the Japanese economy improve over a 10 to 15-year period.
William Saito is an advisor for the Japanese Cabinet. He says “it’s just confidence. If you look at the last 20 years -- the economic fundamentals, the infrastructure, government politics -- these things haven’t actually changed.”
Shin Fukushige is a managing director for the technology company Seikoware. He says, “there has been a huge improvement in psychology” in the past ten years. But it is difficult for many Japanese who begin new businesses to convince workers to join their companies."
Many of Japan’s large companies were created many years ago. But many large and successful companies in the United States were created in the past 20 or 30 years, including Apple and Google. This has helped the American economy grow.
Experts are asking how to help Japan’s old and slow-moving economy grow. Some of them believe actions have already been taken that will show results in the years ahead.
What to watch for
After the G-7 meeting this week, many people will closely watch the actions of the Bank of Japan. The bank’s leaders want people to wait a few more months for recent government measures to take effect. If these measures are not successful, the bank could take strong action. Some experts hope the bank will place fees on savings and force companies to sharply increase wages.
However, the other G-7 nations do not want Japan’s government to lower the value of its currency -- the yen. That would make the country’s exported products less costly and could hurt the economies of other countries.
Words in This Story
struggle – v. to try very hard to do, achieve or deal with something that is difficult or that causes problems
host – v. to be the host for (a social event, a group of people, an event, etc.)
deflation – n. a decrease in the amount of available money or credit in an economy that causes prices to go down
diverse – adj. made up of people or things that are different from each other
pension – n. an amount of money that a company or the government pays to a person who is old or sick and no longer works
tackle – v. to deal with (something difficult)
retire – v. to stop a job or career because you have reached the age when you are not allowed to work anymore or do not need or want to work anymore
attract – v. to cause (someone or something) to go to or move to or toward a place
structural – adj. relating to the way something is built or organized; relating to the structure of something
period – n. a length of time during which a series of events or an action takes place or is completed
fundamentals – n. one of the basic and important parts of something
psychology – adj. the way a person or group thinks
currency – n. the money that a country uses; a specific kind of money