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Japan needs a strategy for economic growth in the post-virus era

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While the economies of major industrialized nations are on a steady path to recovery from the COVID-19 pandemic, Japan is lagging behind as it tries to vaccinate more citizens amid a fifth wave of infections.

However, there is no doubt that moves to improve Japan’s economy for the post-COVID-19 era will be fully underway in 2022 and 2023.

But what are the challenges the Japanese economy faces in the post-pandemic era from a global perspective, especially regarding Japan’s overseas investments? And how should Japanese companies and financial institutions cope with these challenges?

After 2013, Japan managed to come out of a long recession and its economy continued on a path of moderate growth from the latter half of fiscal 2016 through fiscal 2018.

The growth process was backed by large-scale expansion in fiscal spending and a policy of monetary easing, which first led to a quick correction of the yen’s appreciation in 2013, then to continued stable yen rate moves from the latter half of 2016.

The effects of the policies and the correction of the strong yen brought about economic recovery driven by external demand, which then expanded to domestic demand, putting the nation on a path of moderate growth between the fiscal years of 2015 and 2018.

Japan also avoided price deflation during this period, and the country’s unemployment rate dropped to 2.4% in fiscal 2018, close to full employment.

But the economic growth slowed down in 2019, as global trade remained sluggish amid the escalation of the trade war between the United States and China.

Then the economy was dealt with another blow by the global spread of COVID-19 in 2020, causing Japan’s real gross domestic product to post negative growth in fiscal 2019 and 2020.

Globally, Japan’s nominal GDP is the third largest in the world after the United States and China, but there is a clear gap between Japan and the other two countries in terms of the size of their economies — the Chinese economy is nearly three times bigger than Japan’s and the U.S. economy is more than four times bigger.

Meanwhile, Japan has been the world’s top creditor nation for the past two decades, posting net external assets of ¥357 trillion as of the end of 2020, maintaining the level between ¥300 trillion and ¥360 trillion for seven years.

While Germany and China also maintain a positive net foreign assets balance, the U.S. had net external debt of ¥1.4 quadrillion in 2020, with its net debt increasing by some ¥1 quadrillion over the past decade.

Foreign assets held by Japanese institutions and individual investors totaled ¥1.146 quadrillion as of the end of 2020, expanding by 4.5 times in a quarter of a century from about ¥250 trillion in the........

© The Japan Times

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