How Japan achieved a 40-year economic high amid the pandemic

As the world continued to reel under the pandemic, many nations experiencing a blow to their economies, Japan has recorded something altogether quite different. The country appeared to make a sharp bounceback from its biggest postwar slump in the third quarter, thanks to the financial stimulus it recently announced, breathing life into its sluggish economy and making major gains, especially in the internal tourism sector, export economy and domestic retail consumption.

The world’s third-largest economy expanded an annualised 21.4 percent in July-September. Government data showed on Monday that this went beyond the market forecast, marking the first increase in four quarters.

The bounceback followed a 28.8 plunge in the second quarter, when the pandemic measures hit social and economic life in the country, just like elsewhere in the world.

Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute said: “the strong growth in July-September was likely a one-off rebound from an extraordinary contraction caused by the lock-down steps.”

“The economy may not fall off a cliff. But given uncertainty over the outlook, I would err on the side of caution in terms of the pace of any recovery,” he added.

Private consumption

One of the most important reasons behind the rebound in the Japanese economy, is private consumption. It recorded a 4.7 percent increase.

Japanese households seemed to spend on cars, leisure and restaurants, according to the official data.

After the lockdown restrictions in the early stage of the pandemic, Japan unveiled a stimulus package on May 26 to boost its economy, especially in the tourism sector.

“Go To Travel”, Japan’s campaign launched to boost the country’s tourism sector - one that is said to be worth $15.7 billion - has been particularly successful.

Economist Harumi Taguchi at IHS Markit said, "government measures like Go To Travel subsidies helped boost consumption, but what concerns me is business investment fell more than I expected.”

"As the virus spreads again, companies are cutting back on hiring and, once government measures expire, low wages may weigh on consumption.”

International trade

According to government data, the country’s exports have increased by 7 percent. Shipments of vehicles and auto parts from Japan to the US and China have registered an increase in the past quarter.

However, corporate capital spending and residential investment have witnessed a fall.

“While preventing infection, the government must also support employment and businesses, and make the economic recovery more solid. We have to work to get the economy back on track for growth led by private demand,” said Japanese Economic Revitalization Minister, Nishimura Yasutoshi.

External demand also contributed 2.9 percentage points to gross domestic product (GDP) growth.