Japan Economic View: Updated March 22, 2025.

Japan keeps economic view, warns price hikes pose downside risk.

Article Source: https://mainichi.jp/english/articles/20250320/p2g/00m/0li/010000c

Ideas:
Yes, the Japanese economy indeed might be recovering moderately, which in itself is not a bad thing, as recovering too fast or being overheated has it own challenges.

But the real challenge, always, in Japan, has been consumers and Japanese households, traditionally have been more savers than spenders but then add in the continued high prices in Japan and maybe even more consumers are cutting back on spending and or only spending what they really need.

The only a good thing, might be if consumers continue to not spend that might force prices go decrease some as less demand usually means prices can go down as companies reduce prices to spur consumer spending, but it might happen in Japan as companies continue to pass-on their increased costs to the next in the supply chain including the final retail customer.

Not to get into politics but in economic thinking, it might not be good for Japanese exports as going to the US could be priced higher in the US, which means US consumers might not buy Japanese products because they will become too expensive, as again, US companies will pass on the tariff to the next in the supply chain which means the final US retail customer.

And yes, Japanese exports have been a major economic driver for the Japanese economy, as the Japanese economy since the second world war has been been driven mostly by exporting products globally and of course to the US.

Its too early to say what is really going to happen as there is a lot discussion and dissension now in the US so who knows exactly what is going to happen.

The Japanese government, and for good reason, never wants to say anything negative about the Japanese economy as they don't want to upset the financial markets, so they use phrases like recovering at a moderate pace but adding it part be on a pause at the moment, as a way to say while its recovering but not as fast or what we would like.

The Japanese economy is still a very stable economy and really doesn't go down that much or do up that much. That can be both a good thing and a not so good thing, as sometimes it seems like the Japanese economy is stuck or stagnant but there times when it will have a growth spurt but then go back to its stagnation phase.

So the Japanese economy, while staple can be unpredictable sometimes with a little growth and then a little less growth and so on every quarter.

It has been suggested that corporate profits are improving a lot as companies are increasing their wages to their workers and it also has been suggested that many large companies have been sitting on huge sums of cash for many years but are now finally beginning to use the cash to increase their workers salaries as a way to keep existing workers and attract new workers and many companies are doing the same thing, as there is a so-called labor shortage in Japan.

And yes, consumer spending or Japanese household spending is maybe 50 percent of Japan's GDP, but you sometimes never see it as Japanese consumers, due to continued high prices and the lack of wages increasing for many years, they just don't spend like US consumers spend as they are more savers and now cutting back a lot as inflation has been cutting into their disposable income.

Japan is a resource-poor country which means Japan has to import much of what is needs which also means as the Japanese yen is weak compared to the US dollar imports into Japan are expensive now, which of course affects Japanese consumers and Japanese companies that use raw materials from the US to make products, which also means Japanese companies are going to pass-on their increased import costs to the next in the supply chain including the final retail customer.

The only bright spot of the Japanese economy this spring is if Japanese companies increase wages to a level that Japanese workers/Japanese households feel good and that might be enough for Japanese consumers to begin to spend again in the Japanese economy.

The only negative part might be small and midsize companies, which employee about 70 percent of the Japanese workforce, and if small and midsize companies, which don't have the resources that large Japanese companies have, can't increase wages enough that could mean 70 percent of the Japanese workforce might not feel good about the wage increase they get and of course might not spend to help improve economic growth.

Consumer sentiment is everything, meaning if consumers feel good they spend if they don't feel good they will not spend or they will only spend what they need and no more than that.

If enough Japanese consumers don't spend you would think that maybe the Japanese government might try price controls, at least temporarily, to reduce prices and spur consumers to spend again.

The Japanese government has recently since the pandemic instituted energy subsidies as a way to help Japanese consumers and households so why haven't used price controls for some food basics such as milk, bread, eggs and rice to help Japanese families.

Again, not to get into politics but the global economy is very much interconnect as supply chains, globally could potential be affected a lot which means all countries are going to be affected by what is going on. 

Even if a country doesn't have tariffs on its products, because many products are made in many different countries it could affect those economies that don't have tariff challenges.

And again its a little too early to tell what is going to happen as the current administration keeps changing its mind on what and how its going to do things.

Have a nice day!