Japan Economy Assessment |
| Economy Current Assessment (February 2006) |
Japanese economy has improved
for the last 12 months with 4 successive quarters of positive nominal
growth. The latest GDP figures of Q4 2005 show a nominal growth of 0.9%
and real of 1.4%. The bad news is that GDP deflator still stands at
-1.6% year on year which shows the persistence of deflation. (see our
GDP Growth Table) Despite all the optimistic declaration, we still think that this is improvement is not durable as the economy is still propped ud by a huge government deficit of 8% of GDP although the Government Bond interest rate is still only around 1.5% on 10 years bond. This situation is not sustainable in the middle term. Furthermore forecast tax increases and structural problems as developed below such as weak demographics , rigid regulation low tax incentive for entrepreneurship still weighs on the long term prospect of the Japanese economy
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Latest GDP Figures Latest GDP Comments Previous assessment of Japanese economy Blog Invest Japan |
| Japan Structural Problems |
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We believe that 4 major
structural factors are preventing Japanese economy to recover: - Few good opportunities for business development in Japan. Japan is an extremely regulated country where development of new business is hampered by tight regulations. One illustration is the impact that such a small regulation change such as loosening the rules limiting height of buildings had on the real estate market. - Debt trap. Official figure for Public deficit represents 160% of GDP. Government budget deficit is around 35B$ representing 8% of Japan GDP. Primary deficit is 6%. - Aging of population. Birth rate is 1.29 per women and less than 1 in Tokyo. (2.1 is necessary to ensure long term population stability). Japanese population is expected to start decreasing from 2006. Massive retirement of baby boom generation will also start in 2006 This will induce shrinking markets for most products and also heavy burden on public finance reinforcing the debt trap. - High marginal personal tax rates (over 50%) create disincentive for work. Raise in tax rates further aggravates the situation |
| Note: This overall negative assessment for the Japanese economy does not prevent good investment opportunities to exist for investors. |
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