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Visitors admire blooming fields of wild lavender next to Lake Kawaguchi against the backdrop of Mount Fuji at Oishi Park in Yamanashi, Japan, on July 19. The Japanese government’s ‘Go To Travel’ domestic tourism campaign is among its many efforts to sustain the country’s economy amid a drop in foreign visitors. Photo: EPA-EFE
Opinion
Rupakjyoti Borah
Rupakjyoti Borah

How RCEP and domestic demand are boosting Japan’s hopes for economic recovery

  • Japan’s fortunes appear to be looking up as its economy grew 5 per cent in the third quarter with jumps in private consumption and exports, especially to China
  • Challenges still loom, though, with uncertainty over US-China relations, the fate of the Tokyo Olympics and a worrying spike in Covid-19 cases
Rupakjyoti Borah
Rupakjyoti Borah
Why you can trust SCMP
Reports show Japan’s economy grew 5 per cent in the third quarter, which marks a remarkable turnaround for the world’s third-largest economy.

There are a number of reasons for this. First, the jump has been attributed to increases in domestic demand and exports. This means the stimulus package announced by the Japanese government earlier this year seems to have worked.

Earlier this year, then prime minister Shinzo Abe announced an economic package worth close to 108 trillion yen (US$1 trillion), nearly 20 per cent of Japan’s GDP. In addition, the government announced plans to give 220 billion yen to Japanese companies moving their supply chains from China back to Japan and 23.5 billion yen to companies moving their supply chains to third countries.

Recent figures indicate a 4.7 per cent jump in private consumption in the third quarter, with Japanese spending more on cars, leisure and restaurants. In addition, growing external demand contributed to GDP growth. In October, exports to China expanded by 10.2 per cent while those to the US increased by 2.5 per cent compared to September figures.

Second, Japan has refrained from taking harsh measures to combat the pandemic. Though a state of emergency was imposed earlier this year, the rules were much less restrictive than in most other countries.

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Japan currently has 1,920 Covid-19 deaths, which is remarkable for a country of 126 million people, many of whom live in densely populated cities.

Third, thanks in part to people’s responsible behaviour, Japan seems to have avoided the worst of the pandemic. Though its response was quite nervy in the initial phase of the outbreak, especially while the Diamond Princess cruise ship was docked off Yokohama, Japan managed to get its act together.
Fourth, the government has come up with innovative approaches like the Go To Travel Campaign aimed at promoting local tourism amid the curbs on international travel. Japan has also started easing entry restrictions for foreign travellers and, in October, 20,000 foreigners entered Japan for the first time in seven months.

While this is certainly good news for Prime Minister Yoshihide Suga’s administration, it does not mean Japan’s economic woes are over. There are still huge challenges on the horizon.

06:04

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The state of China-US ties is a major concern, especially as China is Japan’s largest trading partner. The US has escalated the pressure on China under the Trump administration and Japan, a close US ally, is caught in the crossfire. Tokyo is eagerly waiting to see what stance the incoming Biden administration will take towards China.
Also, holding the Tokyo Olympics next year will be a major task. Though IOC President Thomas Bach recently visited Tokyo and said the Games remain on track, it will take a herculean effort from Tokyo in terms of logistics amid the pandemic. Postponing the Games from 2020 has already added an estimated US$2.7 billion to the cost.
In another worrying development, Japan reported more than 2,000 new coronavirus cases on November 18, raising fears of a winter spike.

There is also some good news for Japan. The signing of the Regional Comprehensive Economic Partnership (RCEP) will help its exports to China and Southeast Asia. When the 15-country deal is ratified, it will include nearly 30 per cent of the global economy and 30 per cent of the world’s population.

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In October, Suga concluded his first overseas trip, to Vietnam and Indonesia – countries which are critical for the health of Japan’s economy. There are also reports that Japan is planning additional stimulus to cushion the impact of the pandemic.

The gloom is not over yet – Japan’s economy is expected to shrink 5.6 per cent in the current financial year. But it does seem to be on its way to recovery. As the saying goes, well begun is half done.

Dr Rupakjyoti Borah is a senior research fellow at the Japan Forum for Strategic Studies, Tokyo. The views expressed here are personal

This article appeared in the South China Morning Post print edition as: Signs point to Japan on the recovery path
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