EDITORIAL NOTES

Japan's economic growth is looking up but there's still much to do: The Japan News

A vendor arranges seafood at a store in the Sapporo Curb Market at dawn in Sapporo, Hokkaido, Japan, on Nov 15, 2016.
A vendor arranges seafood at a store in the Sapporo Curb Market at dawn in Sapporo, Hokkaido, Japan, on Nov 15, 2016.PHOTO: BLOOMBERG

In its editorial on Nov 16, the paper encourages the government to accelerate efforts to focus on stimulating domestic demand.

While the nation's economy continues to grow moderately, its upward pace still lacks vigour.

To bring about self-sustaining economic growth led by the private sector, it is important to enhance the real strength of the Japanese economy.

The nation's gross domestic product for the July-September period rose 0.5 per cent in real terms from the previous quarter, according to a preliminary report released by the Cabinet Office.

The expansion, at an annual rate of 2.2 per cent, turned out to be far greater than the potential growth rate, estimated to be in the range of 0-0.5 per cent.

The economy has posted positive growth for three straight quarters for the first time in three years with the previous one recorded shortly after the inauguration of Prime Minister Shinzo Abe's second administration.

The primary factor behind the expansion is the recovery in overseas demand. Exports rose 2.0 per cent from the previous quarter, posting the first positive growth in two quarters.

Exports of components for new model smartphones to other Asian countries and of automobiles to North America were solid.

Yet the future outlook for foreign demand is uncertain.

In particular, the policy actions of US president-elect Donald Trump, who advocates such protectionist policies as scrapping the Trans-Pacific Partnership free trade agreement, could pose a threat to the free trade system.

The expansion of free trade augments the world's wealth, which in turn benefits the United States. The Japanese government needs to tenaciously explain this point to the US side.

It may also be necessary for Japan to take a multilateral approach, for instance by expediting efforts to reach a broad accord over an economic partnership agreement with the European Union.

BUSINESSES MUST RAISE PAY

On the other hand, it is worrisome that domestic demand has yet to gain momentum.

While overseas demand contributed 0.5 percentage points to GDP growth, domestic demand contributed only 0.1 percentage points.

This is primarily due to the fact that private consumption and businesses' fixed investments - the two main pillars of domestic demand - remained more or less flat.

Private consumption, which accounts for 60 per cent of GDP, has registered positive growth for three consecutive quarters.

Partly due to the adverse effects of unseasonable weather such as typhoons, it posted only 0.1 per cent growth.

Real compensation for employees, which includes wages, grew a solid 3.0 per cent over the same period last year.

However, the budget-mindedness ingrained in consumers during a deflationary phase has proved deep-rooted and apparently acted against the loosening of purse strings.

Businesses are urged to work toward offering a fourth straight year of wage hikes to workers in next year's annual spring wage negotiations.

It is also important for companies to encourage consumers to maintain the view that employment and income levels will continuously improve, such as by improving the treatment of non-regular workers and even promoting them to the status of regular workers.

Systemic reforms to mitigate people's future concerns regarding social security programs, including public pension, will also stimulate consumption.

How should the government move ahead with the integrated reforms of social security and tax systems, in a situation in which the planned hike in the consumption tax rate has been postponed?

The government must present a concrete course of action early.

Fixed investments by businesses rose 0.03 per cent, showing that the companies' expectations are weak on economic growth.

Acceleration of regulatory reforms to nurture new industries is called for.

The government is urged to solidly back such movements as the "fourth industrial revolution," which centres around the utilisation of artificial intelligence.

The Japan News is a member of The Straits Times media partner Asia News Network, an alliance of 21 media houses.