Japan’s economy has been progressively improving over recent years due to the progressive reforms introduced by Prime Minister Shinzo Abe’s government.
A key objective was to introduce inflation and wage growth into the Japanese economy. Unemployment is at its lowest levels since the mid 1990’s and corporate profits are at a record high. Japanese employers will be paying their employees an increase of 2.1% this year, the biggest rise since 1998. The overall improvement in the economy, a shrinking workforce and skill shortages in the technology sector has helped.
Japan has benefited from the global demand for technology products which have encouraged higher capital expenditure in many of the country’s most productive sectors such as motor manufacturing, semi-conductors and precision engineering. The Japanese economy has now grown for the past eight quarters which is the longest consistent growth run for twenty eight years.
Japans labour market remains tight with an unemployment rate of just 2.5% in March, yet wage growth remains subdued and as such consumer spending is not growing. The inflation rate was 0.6% in March which is still some way off the Bank of Japan’s (BoJ) 2% target. Japan is unlikely to reach this inflation target given the current rate of monetary easing. The BoJ are likely to keep interest rates unchanged at -0.10% but are starting to reduce the amount of QE bond purchases they make, which is now ¥270bn per month.
Analysts are very bullish about Japan as company finances are robust and expectations are of stable and increasingly generous dividend pay-outs.