A government panel in Japan has recommended a shift in policy focus away from crisis-mode stimulus and towards achieving private sector-driven economic growth. This comes in response to rising domestic prices, interest rates, and job shortages, as well as wage growth at a 30-year high. The panel emphasized the need for Japan to transition from heavy fiscal and monetary support which had previously underpinned the fragile economy. The goal is to achieve domestic demand-driven growth and establish a sustainable fiscal structure.
In an effort to connect with young people, Japan’s royal family recently debuted on Instagram, signaling a move towards modernization and increased engagement with the public. Additionally, private-sector members of the government council are calling for continued cooperation between the government and the Bank of Japan to ensure that wages continue to rise in the coming years. With the Bank of Japan recently ending negative interest rates, the private-sector members see an opportunity for economic growth to be driven by private demand.
The council’s meeting also discussed the impact of Japan’s rapidly aging population on long-term economic growth. Estimates from the Cabinet Office show that under a baseline scenario, Japan may see a 6.2% increase in per-capita GDP by 2060. This is lower compared to estimates for the United States, Germany, Britain, and France for the same year. Japan’s aging population is intensifying labor shortages and leading to a shrinking domestic market, with the ratio of individuals aged 65 or higher expected to rise significantly by 2060.
Despite its challenges, Japan’s economy grew by 1.0% in 2022, slightly lower than other major economies such as Germany and the United States for the same year. The recent recommendations by the government panel and private-sector members are aimed at laying the groundwork for setting long-term economic policies and priorities in order to foster sustainable growth. The emphasis is on achieving economic growth driven by private demand, as the country transitions away from heavy fiscal and monetary support that has been supporting the economy. By focusing on providing incentives for private sector growth, Japan aims to address the challenges posed by its aging population and strengthen its economic prospects for the future.
