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  4. The Economy Is Not Experiencing a ‘Moderate Recovery’

2015 Vol.4
The Economy Is Not Experiencing a ‘Moderate Recovery’


In Japanese, the term keiki (general economic conditions) comprises two parts: kei (landscape) and ki (mood). Although it is said that the mood is more important, the landscape is also crucial. Keiki refers to the economic landscape in which upturns and downturns happen repeatedly, and the momentum of recovery and decline is reflected in the slope of the line measuring general economic conditions. The point where an upward slope changes to a downward slope shows a peak of economic activity, and similarly, the point where a downward slope changes to an upward slope shows a trough. Once the economy passes such turning points, the economic landscape changes drastically. Looking at the graphs of economic indicators that are sensitive to general economic conditions, one can see changes in these conditions. The Japanese government and the Bank of Japan continue to take the position that the economy is moderately recovering. However, it seems that in fact the economy stopped recovering and started to decline in spring 2014 when the consumption tax rate was raised. A decline in consumer spending and housing investment after the tax hike contributed to the economic downturn. Further, recovery is difficult because exports and production are no longer robust enough to drive the economy. The economy is not recovering, and the mechanism of growth based on exports is not working. The future economic landscape appears grim. Pessimism is intensifying as concerns grow about slowing growth in the world economy, especially China, and as stock prices fluctuate wildly. Yet, the economy will not decline forever. It should start to improve by the end of 2016, possibly triggered by re-acceleration of the world economy. Japan, however, may miss an opportunity for economic recovery if the country passively waits for it. The ki in keiki is important after all. A positive mood arising from an increasing number of firms actively pursuing growth opportunities instead of merely hoping for some good results from Abenomics will brighten the future economic landscape of Japan.