Observers believe that the Japanese economy saw its
current growth phase outrun the "Izanagi Boom" in November
2006 and since then has been extending the record for the duration
of a growth phase in the postwar period.
In recent months, however, a number of causes for concern
over the future of the economy have emerged, including the deceleration
of the US economy, the growth of inventory of IT devices and the
softening of consumption, and the key issue is now whether the economy
can overcome these negative factors in 2007. Meanwhile, even if
the possibility of an adjustment phase in the short term cannot
be entirely discounted, it is thought that, in the medium term,
the basic economic trend will continue to be upward. Given this
prospect, the key issues are how long this upward trend will continue,
and what is needed to set this upward trend on a firmer footing.
To put the current economic phase in a medium-to-long
term perspective, let us reexamine the history of stagnation and
revitalization that the Japanese economy has experienced since the
bursting of the "bubble".
First, looking back on the changes that the framework
of the global economy has undergone since the 1990s, the revolution
in information and telecommunications, followed by the emergence
of China and other "newly developing superpowers" and
the rapid economic growth of the resource-exporting nations led
to the establishment of a growth cycle mechanism in the global economy,
based on interdependence between the United States, China and the
oil-producing nations. These conditions brought about "rapid
global growth under a climate of high resource and commodity prices
and stable interest rates".
The process by which these changes in the framework
of the global economy came about forced the Japanese economy into
an extended period of stagnation in the 1990s, against a background
of emerging high cost structures and declining capacity for innovation.
From the beginning of the 2000s, as the growth cycle mechanism in
the global economy based on interdependence between the United States,
China and the oil-producing nations began to form, the growth of
overseas demand also began to benefit the Japanese economy. Under
these conditions, as reform of the corporate sector and economic
systems progressed, the Japanese economy recovered its competitiveness
on the strength of the globalization of new international industries
However, if the current economic upturn is to become established
and grow stronger, Japanese enterprises will have to address new
issues, including the onslaught of Asian enterprises, the dawning
of an age of global mergers and acquisitions and a growing shortage
of human resources.
So, how is the Japanese economy likely to fare in the future? Looking
at the global environment, conditions in which must be the basis
of any forecast, for the next few years, with the growth cycle mechanism
based on based on interdependence between the United States, China
and the oil-producing nations set to remain in operation, the global
trend of economic growth is likely to continue.
Under these conditions, the outlook for the Japanese economy from
the second half of fiscal 2006 and into fiscal 2008 is as follows.
The second half of fiscal 2006 will see a continued deceleration,
owing to the deceleration of overseas economies beginning to make
itself felt in earnest, an adjustment in production speed in the
IT sector and a tailing-off of the surge in capital investment due
to large-scale projects. However, in contrast to the situation at
the time of the collapse of the IT bubble or during the "plateau"
phase of 2004, the Japanese economy retains a considerable ability
to absorb shocks, and is likely to avoid slipping into a recession
In fiscal 2007, the positive effects of the recovery of the US economy
and the boost to corporate profits provided by the mass retirement
of dankai generation baby boomers (through increased consumer spending
on the strength of a rise in the payment of lump sum retirement
benefits and through a fall in personnel costs) will allow the growth
rate to accelerate into the second half of the year.
In fiscal 2008, a deceleration of capital investment is likely to
become apparent as the corporate sector begins to take steps to
avoid excessive investment, but, owing to strong exports and the
demand rush ahead of the rise in the consumption tax rate (probably
by 2 points in April 2009), anticipating demand that would normally
be expected in fiscal 2009, it is likely that the recovery trend
will persist, somehow or other, until the end of the fiscal year.
Although the recovery is set to continue until fiscal 2008, is possible
that global economic conditions will deteriorate thereafter, and
at some point, it will have to be seen whether or not the Japanese
economy is capable of autonomous growth even under adverse conditions.
Moreover, Japanese enterprises will face increasing pressure to
develop their businesses on the assumption of a global market, and,
to survive against intensifying domestic and foreign competition,
will have to make still greater efforts to create added value.
In this light, it is clear that, over the next two years or so,
which are likely to see the favorable conditions of "global
economic expansion against a background of disinflation" continue,
Japan needs to bolster the growth potential that it has begun to
regain and build up the economic strength that will allow it to
survive the adjustments that may follow. For this reason, Japanese
enterprises should make 2007 the first year of a drive to build
up their growth potential and set about investing in "three
key areas" with an eye to the future.
On the policy front, rather than boosting the growth rate in the
short term, Japan should focus on building up its base for growth
in the medium-to-long term using a two-pronged approach based on
systemic reforms and taxation and fiscal measures designed to promote
investment in the "three key areas" and fiscal and monetary
measures designed to create a macro environment conducive to sustained,