The Japanese economy is the third largest in the world behind the USA and China. Japanese GDP is worth approximately $4.9 trillion and it has a population of 126 million, almost 28% of whom are over 65 years of age. The proportion of elderly Japanese has been referred to as a demographic time bomb as it means the nation is faced with increasing pension and social security costs at a time when the proportion of the population in work declines. This explains why the Japanese government has been keen to stimulate domestic demand and end deflation as a means to bolster the exchequer.
The Japanese economy grew at a rate of 1.4% in Q3 (on an annualised basis). This marks the seventh consecutive quarter where the Japanese economy has expanded and represents the best period of growth in more than ten years.
The Japanese Prime Minister, Shinzo Abe, won a fresh mandate in a snap election last month and has been in power since December 2012 and has embarked on a package of economic stimuli knows as Abenomics. A central aim of the policy is to put an end to the deflation which has dogged the Japanese economy for decades. Currently, consumer price inflation is running at 0.7% (September); it has a long-term average of 3.03% (1958 to 2017) with an all-time high of 24.9% (February 1974) and a record low of -2.5% (October 2009). The Bank of Japan has a target inflation figure of 2%, so inflation is still well below this level. The Bank is expecting full year growth of 1.8% and continues with its QE measures.
The Q3 growth has benefitted from stronger global demand for Japanese exports which has compensated for disappointing domestic demand. Exports over the quarter grew at 6%, however domestic, private consumption dipped at an annual rate of 1.8% which shows that Abenomics has a way to go before domestic demand is on-track.
