However, its official currency yen reached its 32-year low against the dollar. The crucial factors behind these are the widening interest rate gaps between the US and Japan, along with the latter’s trade and current account deficit.

Japan’s history of low inflation
Despite its destruction in the Second World War, Japan in 1960 had a per capita GDP of around USD 8600, about one-third of the US. The same figure touched the USD 35000 mark by 1988 and surpassed the US on this front.

The average per capita growth in Japan was 5.2% in 1988 alone. However, after the 1989 Tokyo stock market crash and the 1992 asset price bubble burst, the US overtook the Asian country in terms of per capita income and it widened further. As per the 2018 stats, the US per capita income was USD 55,000, while Japan’s was USD 49,000. The Asian country’s average per capita GDP growth figure from 1998-2018 was only 0.76%.

However, one noticeable thing about Japan is its consistently low inflation. In the 1980s, it was at 2.5%, came down to 1.2% by the 1990s and in the early 2000s, became deflation, averaging from -0.2% to 0.5% in 2019. During COVID, the parameter turned negative again.

It rose from 0.1% in 2021 to 2.6% in 2022. Also, from 1992 to 2021, consumer goods prices rose only by 6% in Japan as against the nearly 80-90% ones in the UK and US.

Roles of Abenomics and wage rule behind low inflation
In 2012, after coming into power for the second time, late Japanese PM Shinzo Abe came up with “Abenomics”. It was about increasing the country’s money supply, boosting government spending, and infusing the essence of competitiveness in the economy.

From 2013-2018, Japan’s monetary base expanded through government-backed easing. It was done to disrupt the prolonged strong yen and deflationary recession that haunted Japan from 1993 to 2013 beginning.

The beneficiaries of the monetary policy easing were large exporting companies and the wealthy as they reduced wages and raised the consumption tax. There was no increase in average household incomes, affecting consumer behavior.

During COVID, the government spent large amounts of capital to keep the economy running. It used only a small amount of money on the household support front. With prices remaining moderate and no wage hike, Japan lowered the risk of severe inflation back then.

Japan’s average wage rate ratio has remained the same since 1992. As per the data of the Organization for Economic Cooperation and Development (OECD), the Asian country’s average annual individual income is ranked 24th out of 35 nations. Among G7 members, it is the second lowest.

With food and energy prices rising in 2022 and not the average salaries, an average Japanese household can find meeting its daily ends very difficult.

As per the Focus Economics report, the weak domestic demand is related to low wages. Over a third of all jobs are either part-time or contracted ones, with the labor unions focussed more on the job security front.

However, with inflation severely affecting the best of economies in the world right now, this pattern may change in the coming days as either the business leaders will have to effect some salary raise for their staffers or the unions will have to toughen their stance on the matter to ensure that the basic salary scale is matching the positive inflation metrics or in the best case, outpacing the latter.

While the nation opted for the gradual easing of pandemic curbs, resulting in slower economic recovery and a delayed yet significant post-COVID demand increase, as explained by Yasumune Kano from policy think tank Chatham House, these moves will only hold back the arrival of global inflation, instead of completely avoiding it.

Bank of Japan’s love affair with negative interest rates
The Bank of Japan has a monetary policy different from that of the US or UK. For the Bank of Japan, it’s all about going after monetary policy easing as opposed to the western counterparts, whose primary weapon against inflation is aggressive rate hikes. The Japanese central bank has the distinction of being the only major financial institution with a negative interest rate policy.

A Moneycontrol report perfectly sums up the BoJ’s situation. It has this constant juggling act between low inflation and deflation. From negative interest rates to large-scale stimulus, it tried everything. While the inflation rate stayed on the negative scale during COVID, it became positive in September 2021 and rose to the 2008 level of 2.5%. The bank’s short-term policy rate remains at an ultra-low level. It eyes buying of bonds and keeps the 10-year interest rates in that area at zero percent.

Talking about deflation, it’s a phenomenon where people ‘believe’ that consumer products will get cheaper as time passes by and stall the consumption behavior growth. The overall economy slows down due to poor demand. While all the other central banks raise policy rates to lower aggregate prices, Japan’s deflation scenario calls for increasing aggregate prices.

Bank of Japan Governor Haruhiko Kuroda recently justified his bank’s policy stance by citing three reasons. First is the country’s slow recovery from COVID, second has been poor Gross National Product (sum total of all Japanese nationals’ incomes, excluding the non-citizens living in the country) growth. As against the 2021 GDP growth of 2.5%, Japan’s GNP was around 0.6%. And the final factor cited by him was high energy prices.

As per a recent study, the rising inflation in Japan is due to the external supply factor, compared to the United States, where the same ratio is nearing 9% due to higher demand and lower supply.

When the interest rate or the cost of borrowing money goes down, the citizens spend more. In Japan, it’s completely the opposite. As per Bloomberg, the interest rate in the Asian country has been at -0.1% since 2016. The same rate, since 1995, never crossed the 0.5% mark.

The report also cites Japan’s aging population behind this low consumer demand and this factor is helping inflation to remain low. This section of the population is keeping more money at hand as the savings policies don’t offer lucrative returns due to the negative interest rates.

During an interaction with International Finance, Professor Robert Dekle, faculty member of the economics department of the University of South California, said, “The high costs will raise Japanese producer costs and they will raise their prices, hurting consumer demand and GDP. If the country is worried about the weak yen, it will have to raise interest rates. But the weak yen has benefits like promoting exports and tourism as well, and shifting demand to Japanese products. Whether the weak yen on the net will hurt Japan is an open question.”

Talking about the Bank of Japan’s distinction of sticking with the formula of easing monetary policies and whether that will help the country to fight inflation this time around, Professor Robert Dekle said, “The inflation rate is still low, and the economy is still weak, so Japan will try to muddle through with the low interest rates, despite the weak yen.”

“No, the higher minimum wages will worsen inflation by raising wages and producer costs,” he replied, when asked about the Japanese government’s plan about introducing a ‘Minimum Wage Hike’ policy.

Japan’s tight state controls to deal with price rises
Along with the Bank of Japan’s monetary policy easing stance, Japan is also known for its government control to limit consumer goods and services price volatilities.

Electricity and natural gas prices follow the gradual revision process and the utility providers go for long-term supply contracts. They only pay a yearly premium to ensure price stability, petrol prices have been subsidized recently.

While the world is suffering due to the surge in wheat prices, thanks to the Ukraine war, Japan is immune from its side effects as the product is imported by a government entity that follows the principle of fixing a six-month uniform market resale price range. Japan imports mainly from the US, Canada, and Australia. In 2022 June, this import cost exceeded the resale price, effecting a subsidy-kind of situation for the domestic consumers.

While Japan may go for a bigger and more prominent “bread and noodle subsidy” as the Ukraine conflict rages on, the slow lifting of COVID curbs also ensures that the post-pandemic demand increase will keep the country’s inflation down for some more months. Still, there is a shift towards sustained inflation for Japan’s economy and the “cost of living” emerged as an issue during the recently concluded House of Councilors election.

The Bank of Japan said that future debates on its monetary policy will revolve around short-term interest rate hikes and the central bank’s balance sheet health. So, it needs to be seen whether the Asian powerhouse goes for an economic policy change and if it happens, how drastic it will be.

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The term “Abenomics” itself has gained a lot of attention, part of the reason being that it’s a great contrast to what is happening around the world.

Abe, who was shot dead during an election campaign, wanted to revive Japan’s economy back to life after more than two decades of stagnation which had led to the collapse of the asset bubble in the early 1990s.

Abe’s strategy included three “arrows” (loose monetary policy, fiscal stimulus, and structural economic reforms) that were intended to jump-start economic growth and higher salaries.

The Abenomics reform platform was aimed to increase productivity by reducing corporate taxes and red tape, as well as to diversify the increasingly aging workforce of the nation by promoting the participation of more women, pensioners, and immigrants.

Abe in one of his speeches in 2016 said that “we should look toward the future, instead of worrying about the present.”

He even pointed out that Japan might be aging and losing its population, but this should be seen as an incentive.

During his administration, exports increased, economic growth recovered from the lull of the 1990s and 2000s, and unemployment fell to its lowest point in decades.

More so, Japan experienced eight straight quarters of positive growth between 2015 and 2017, which is the longest in almost 30 years.

Finally, Abe’s huge goal of increasing the nominal GDP to 600 trillion yen by 2020 never came to pass and is still unfulfilled to this day.

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Public broadcaster NHK reported that Abe’s Liberal Democratic Party and its allies had secured two-thirds of the seats in the lower house of Parliament.

The result is a major turnaround in the fortunes of Abe who was dogged by a series of scandals that had battered his popularity. In the midst of the scandals, he had adopted a hawkish strategy toward North Korea. He began pushing for amending the constitution to free the military of the constraints imposed after World War II.

It appears that Abe took the opposition by surprise by calling for snap elections. The opposition parties were neither prepared with alternative policies and proposals, nor with any sort of plan to take on Abe in the elections. Abe’s proposal to amend the constitution was the major issue in the campaign.

Tokyo Governor Yuriko Koike was expected to mount a serious challenge to Abe, but was not prepared for snap elections. Her chances dimmed further when she decided not to run for office. But she damaged the prospects of other parties by splitting the opposition votes.

In Japan, the candidate who gets the most votes in a constituency is declared the winner. In the run-up to the elections, a number of parties emerged. The opposition vote was split among their candidates. This ensured a comfortable victory for candidates of the incumbent Liberal Democratic Party in most of the constituencies.

Under the circumstances, the vote for the Liberal Democratic Party seems to be a victory by default or, at best, an expression of a desire for stability rather than an endorsement of Abe’s policies and proposals.

Abe may have been pushed by US President Donald Trump’s call for Japan to defend itself rather than depend on the Americans. But he will need to get the nation behind him for the amendment to the constitution. Sunday’s victory will only ensure that he has until 2021 to persuade the Japanese to back his proposal to amend the constitution.

The question is whether this look outward policy will have any impact on the other major problem facing Japan — an aging population. The aging population is also putting a strain on the economy. The lack of growth or positive movement in the economy has been weighing in on the island nation for the major part of this decade.

What the Japanese now have is continuity and stability in government for the next four years.

If not for North Korea’s acts of hostility, the Japanese would be busy preparing to host the Olympics in 2020, which is expected to boost the economy.

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Earlier on Monday, Abe had announced his decision to call a snap election, which is expected to take place in the second half of October.

Abe came to power in 2012 on the promise of resurrecting the stagnating economy. His performance on the economic front created an impression that he would succeed in retaining his job in the next elections in 2018. But, his popularity began to wane following some controversial decisions, scandals and allegations of using his position to help friends. One line of thinking is that Abe called snap elections to avoid facing difficult questions in parliament.

One of his controversial proposals is to allow troops to fight overseas. Also, an anti-terror law did not go down well with the people. His Liberal Democratic Party (LDP) has suffered defeats in local elections.

But his ratings rose after he took a strong stand against North Korea for firing two missiles over Japan. His decision to call for a snap election is being seen as an effort to take advantage of this rise in popularity. He hopes to take advantage of the divisions in the opposition, which lacks a strong leader. However, that could change.

Tokyo Governor Yuriko Koike, who left his party in May, is emerging as an alternative to Abe. Her allies scored a resounding victory in local elections in Tokyo where Koike enjoys wide popularity.

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The move by Abe, who starts a two-day visit to India, highlights an early lead for Japan in a sector where the Chinese have also been trying to secure a foothold, but without much success.

Described as the Indian Railways’ most ambitious project till date, the 550-kilometre bullet train corridor may help rewrite India’s transport infrastructure narrative.

The leaders will launch the start of work on the line on Thursday, India’s railways ministry said in a statement.

Japan is providing 81 percent of the funding for the 1.08-trillion-rupee ($16.9-billion) project, through a 50-year loan at 0.1 percent annual interest.

Tokyo hopes that by gaining a head start on rival exporters of rail technology such as China and Germany, its companies will be able to dominate business in one of the most promising markets for high-speed rail equipment.

In 2015, China won a contract to assess the feasibility of a high-speed link between Delhi and Mumbai, part of a network of more than 10,000 km (6,214 miles) of track India wants to set up, but little progress has been made.

From the seas, to the skies

Currently 11 stations are proposed in this corridor. The terminal is planned at Bandra-Kurla Complex (BKC) in Mumbai. The station is to be built three levels underground.

From BKC, the train will traverse 21 kilometres underground before emerging above ground at Thane. Out of these, seven kilometers will be undersea.

From Thane, it will move further north, finally ending its journey in Ahmedabad. The proposed 11 stations are Mumbai, Thane, Virar, Boisar, Vapi, Bilimora, Surat, Bharuch, Vadodara, Anand and Ahmedabad. The terminal at Ahmedabad is planned near Sabarmati railway station.

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April 22, 2016: The Republic of Panama announced the signing of a historic agreement with the Government of Japan valued at PAB/USD $2.6 billion to fund the construction of Line 3 of Panama’s Metro, the largest project in Panama since the expansion of the Panama Canal. The monorail system will be the first to use Japanese technology in the Americas.

The agreement, in addition to funding the Metro construction, will include non-refundable technical cooperation up to PAB/USD $35 million to hire a project manager.

“The funding granted today by Japan is a recognition of Panama’s credibility, stability, and strength” President Juan Carlos Varela said in the joint press conference with the Prime Minister of Japan Shinzo Abë, “Today’s announcement proves that our economy is sustained by solid foundations.”

The President added, “Today is a historic day in Japan-Panama relations.”

“This great project,” he explained, “It will benefit hundreds of thousands of Panamanians that have to commute every day to the west side of Panama City, and will allow us to showcase Japanese technology to everyone in the region”

Conditions

President Varela and Prime Minister Abe were witnesses to the exchange of notes and documentation between the Japanese International Cooperation Agency (JICA) on behalf of the Government of Japan and Vice Minister of Foreign Affairs, Luis Miguel Hincapie, Minister of Economy and Finance, Dulcidio De La Guardia, and President of the Metro, Roberto Roy on behalf of the Government of Panama.

The funding granted by JICA is a loan with soft financial terms and conditions. It has a 20-year term, which includes 14 years of amortization, 6 years of grace period and 3 years for disbursement. The interest rate will be 6-month LIBOR JPY minus 1.05%, with an initial fee of 0.20%. The first contract will be for up to ¥29,575,000,000.00, and there will be up to 5 contracts for loans until the completion of the Project.

Project Administration

The project manager will support the Metro of Panama in the implementation of the project for Line 3, overseeing the preliminary design of Line 3 and together with the team from Metro of Panama developing the conditions for the public bidding for the construction and supervising the bidding and the evaluation of the proposal. Additionally the project manager will manage the overall execution of Project Line 3, including the integration of the monorail system with the fourth bridge over the Panama Canal.

The company that will execute the project will be chosen through a process of international public bidding.

According to the Government, Japan is implementing this project as a measure to support developing countries in climate change. Japan announced in November 2015 its “Actions for Cool Earth 2.0,” a programme to support activities against climate change for 1.3 billion yen, funded by public and private partners. Japan will continue to cooperate with Panama in Project Line 3 to reduce CO2 emissions and minimise the impact of climate change.

Line 3 of the Panama Metro will be 26.75 km long with 14 passenger stations. The line starts with a connection with Line 1 in Alborrok station before heading to the Balboa area and crossing the Canal over the superstructure of the fourth bridge, running beside the Pan-American Road before heading to the Special Economic Zone Panama Pacific and continuing through the center of Arraijan City.

From Arraijan it continues through the Pan-American Road with a few stops before the end in Ciudad del Futuro, where the line will have its maintenance and storage facilities. The first phase of Project Line 3 will be built to facilitate phase two which will reach La Chorrera.

The first phase of Line 3 will meet the demand of 20 thousand daily commuters in rush hour in 2020. With the second phase Line 3 will benefit 31,862 commuters in 2050. The project will begin in 2017 and its operations are estimated to begin in the end of 2021.

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November 17, 2014: Japan’s economy slipped to recession in the third quarter for the second time in a row. This has set stage for Prime Minister Shinzo Abe to delay sales tax hike and call for a snap election halfway through his term.

Japan’s real GDP shrank 1.6% on an annualised basis as firms cut inventories and held back on capital investment. The figures came as a shock as not many economists had forecast a contraction.  This is the second quarter of contraction after the economy shrank 7.3% in the April-June quarter.

The downturn has been mainly blamed on rising sales taxes that have hurt consumer spending. For instance, private housing investment fell an annualized 24% in the July-September quarter.

Experts say that there should not be any rethinking on whether or not to have a sales tax cut.

On October 31, Japan had announced fresh pumping of money into the economy. The move was seen as an attempt to bring the economy, which has been going though sluggish growth due to sliding global oil prices, back on tracks.

The US, Europe and Japan have all faced choices in recent years between tackling large budget deficits and stimulating economies hit by lackluster demand.

However, there are some who say that Japan needs to move quickly to reduce its government debt, now the highest in the world at more than twice the size of the economy.

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