2020 was supposed to be a triumphant year for Japan. More than a decade earlier, the nation had earned the right to host the 2020 Olympics, and by early 2020, its preparations were nothing short of impressive. But along came COVID, and the best laid plans of the Japanese Olympic Federation were thwarted by an unprecedented global pandemic. As the pandemic progressed, Japan was considered a model for precaution. Generally speaking, the Japanese population followed anti-COVID measures, which allowed them to keep COVID rates low. But by the time the delayed Olympics took place in summer 2021, much of the rest of the world had already opened back up. Japan, however, remained under fairly strict lockdowns because of its low vaccination rates. What was supposed to be a year that demonstrated how futuristic the island nation was ended up making it seem behind the times.
What a difference a year makes
Now in mid-2022, restaurants are full. So are shopping centres, airports, and train stations. After two years of frigid stasis, the Japanese economy is finally heating back up. It does not matter that there is rapid inflation, that China is still locked down and slowing down the global economy, or that energy prices are skyrocketing across the globe; Japan’s consumers have shown that they are ready to spend again after two long years. The world’s third largest economy grew by an annual rate of 2.2% in Q2 and Q3 according to recently published government data. This growth follows a Q1 that showed zero growth, yet thankfully zero contraction, in response to Omicron. By this time, the Japanese public had high vaccination rates and no longer wished to remain locked indoors, so they began to go out and spend much more. For that reason, the Japanese economy witnessed a lot of “revenge” or “catch-up” spending. Essentially, consumers wanted to make up for all that lost time, especially when it came to restaurants and travel.
Despite this positive news, experts are still trying to figure out Japan’s “new normal”. For example, all that Q2 growth occurred despite difficulties for SMEs throughout the country. For example, China’s continued lockdown has meant that retailers, especially mid-size ones, are having trouble keeping desirable items in stock. Likewise, manufacturers are having trouble procuring the materials they need. When there are shortages, the largest retailers and manufacturers squeeze out their smaller competitors. If this trend continues, and only the big dogs can survive, it does not bode well for the overall strength of the Japanese economy in the long run. Moreover the yen, the Japanese currency, has lost 20% of its value against the dollar. While that makes selling Japanese products easier, it makes imports far more expensive. Importers were already suffering, since Russia’s invasion of Ukraine and the pandemic have led to price increases and never-before-seen supply chain woes.
The good news is that Japan’s inflation rate is only 2%. Compared to the rest of the world, that is a fantastic rate. Though lower than many other countries, many companies have still been forced, either by the market or their strategists, to raise prices. Although it is clear that the Japanese are happy about current growth, what remains unclear is how long this growth will continue. If the global economy continues to decelerate, Japan’s 2% growth may fade just as quickly as it re-emerged.