Editorial: As Japan falls to 4th-ranked economy, people's livelihoods must come first

Economic revitalization minister Yoshitaka Shindo is seen releasing a statement over the preliminary figures of Japan’s 2023 GDP at the Cabinet Office in Tokyo’s Chiyoda Ward on Feb. 15, 2024. (Mainichi/Akihiro Nakajima)

Japan slipped to the world’s fourth largest economy after Germany surpassed its nominal gross domestic product last year. Not only did Japan’s GDP fell in dollar terms due to the weak yen, the latest ranking is the reflection of larger problems faced by the Japanese economy; namely, sluggish personal spending which accounts for over 50% of GDP.

The effects of normalized economic activities following the COVID-19 pandemic have lost momentum. Since the July-September 2023 quarter, Japan has experienced negative growth for two straight quarters.

Behind the decline is the fact that wage hikes are not catching up with the pace of inflation. Japan’s real wages in 2023 fell by 2.5% from the previous year, the largest decline since 2014 that saw an impact from a consumption tax increase.

The lower a person’s income, the harder they are hit by inflation. Nearly 40% of all workers in Japan are in unstable nonregular employment, and many are forced to cut spending. Without rebuilding the livelihoods of the people who are struggling to get by amid inflation, Japan will not be on a stable footing to achieve economic recovery.

What is disconcerting is the widening of economic gaps. The Nikkei stock index is approaching its highest record marked during Japan’s bubble economy. The weak yen means Japanese export-oriented companies including automakers are performing well, benefitting high-income earners.

The average price of new condominiums in Tokyo’s 23 special wards released last year topped the 100-million-yen (roughly $670,000) mark for the first time. The main customers of these condos are double income families headed by so-called high-paid “power couples.”

The “Abenomics” economic policy mix spearheaded by late former Prime Minister Shinzo Abe also only brought the benefits of the yen’s depreciation to large corporations and the wealthy class. Ever-growing nonregular workers have been left out, and as a result spending has remained sluggish. The distorted structure of Japan’s economy has not changed.

Despite this, Prime Minister Fumio Kishida emphasized during his policy speech in the Diet in January that “promising signs that the Japanese economy is moving to a new stage are everywhere,” touching on recent wage increases and high stock prices. We must say his claim is likely far off from how many people in Japan feel.

Wage negotiations this spring hold the key. Large corporations are moving to increase wages proactively, but whether this trend will spread to small- and mid-size businesses, which hire some 70% of the country’s workforce, is the challenge. Cooperation from large businesses that are their clients and government support are crucial.

Measures to cut income tax, pushed for by Prime Minister Kishida, will come into effect as early as June. However, just repeating manipulative gimmicks to stimulate the economy will not dispel anxiety about the future. It’s an urgent task to make full-fledged efforts to correct the disparities and raise the standard of living of the people.