Japan

The economy expanded by 2.2% in 2006, after growth of 1.9% in 2005.
Business investment played a key role in domestic demand growth.
Asian countries, notably China, have become important trade partners for Japan. Almost half of Japan's exports in 2006 were to East Asia and more than 40% of its imports were from that region.
Export growth was strong but was exceeded by robust imports, reflecting high import prices of oil and raw materials. The increase in business investment contributed to the continuing growth of domestic demand and the strong growth of imports.
Deflationary pressure appeared to have been contained in 2006. The inflation rate was positive (0.2%) for the first time since 1999. Corporate price inflation, which tracks changes in wholesale prices, grew fast, while consumer price inflation hovered around zero.
Japan's solid economic recovery would be beneficial for Asian countries, given the size of Japan's economy and the country's impact on trade in Asia. It would help ease the effect of slow down in the major trading partners of Asian countries, such as the United States.
Growth is expected to continue in the coming years with corporate sector performance expected to remain favourable. The economy is expected to grow by 1.9% in 2007. The prospects for growth of consumer expenditure depend on future income growth.

Business investment led GDP growth while household consumption remained weak.
Business investment grew in both manufacturing and non-manufacturing sectors.
Despite the growing possibility of labour shortage, wage pressures remained low, further contributing to the improvement of corporate performance.
With slow wage growth and sluggish growth in household income, consumer expenditure growth remained slow.
Corporate price inflation continued to grow, reflecting the high import prices of raw materials and intermediate inputs.
Corporate price inflation has not been fully passed on to consumer prices, reflecting sluggish wage growth and competition. Wage growth was still suppressed, despite the growing possibility of labour shortage in the corporate sector.
Weak growth of consumer expenditure was largely due to sluggish wage growth.

Asian countries' importance as trading partners for Japan has increased in recent years; e.g.,
- Almost half of Japan's exports are to East Asia
- More than 40% of Japan's imports are from East Asia
- Trade with Asia is growing much faster than with traditional partners, such as the United States and the European Union.
Export growth was modest in 2005, along with subdued demand from Asia, but has rebounded since the second half of 2005. China has become the key driver of Japan's trade performance.
Export growth was exceeded by robust merchandise imports, driven by higher commodity prices in global markets, most notably oil and raw materials.

With the growing signs that deflationary pressure had finally been contained, monetary policy was shifted. Monetary policy moved from quantitative easing to interest rate targeting. The overnight call rate was to be kept as close to 0% as possible. The Bank of Japan raised the call rate to 0.25% in July, symbolizing the recovery from the long period of stagnation.
Fiscal consolidation remains the challenge. General government debt amounted to around 180% and net general government debt around 85% of GDP. The recent economic recovery and reduction in public investment has improved the budget deficit but was far from sufficient to reduce the burden of rising interest payments.

Inequality of household income has been increasing, as seen in the increase in indicators such as the Gini coefficient and the P90/P10 decile ratio.
The increase in Gini coefficient reflects demographic change and household composition.
Inequality is high among the elderly population. The ageing population is increasing the pool of poor elderly.
Wage disparity among the young population is also increasing.

The Gini coefficient of wage income among the young generation has increased.
The trend reflects a significant increase in non-regular workers, whose wages are typically much lower than those of regular workers.
Among non-regular workers, the increase in young part-time workers is particularly significant.
The long term prospect for this trend is of concern, since
- Moving from a non-regular to a regular job is not easy
- The prospects for wage growth of part-time workers are very limited
- Though to a lesser extent, the career prospects of non-regular workers are limited. The coverage of various social security schemes for non-regular workers is limited – implying possible hardship for this group after retirement

Relative poverty has increased, from 11.9% in the mid-1980s to 15.3% in 2000 (OECD estimates)
Poverty gap (the extent to which the average income of the poor falls below the poverty threshold) has increased
Absolute poverty? – there is no clearly defined national poverty line. Using the criterion of income assistance under the social welfare scheme as a proxy , a study estimated an increase in the poverty rate by household, from 7.5% in 1995 to 10.8% in 2001, and for working age one-person households from 7.5% to 16.5%.

The number of people relying on social security has increased from less than 0.6% to 1% of total population. Although the ratio is small, the rate of increase is significant. The actual number of beneficiaries is thought to be much smaller than those eligible – perhaps less than 20%.

The tradition of a high savings rate may no longer be true – the ratio of total savings to GDP has fallen from around 16% in 1992 to 6% in 2002. The number of households with no savings has increased to almost one fifth of all households. The trend is particularly significant among young people.
The over-60 age group has reduced its savings rate in the past 10 years, suggesting a pressing need to dis-save.

There are concerns over difficulties in moving from the poorer income group to a higher income group. For instance, moving from non-regular work to regular work has proven to be difficult. Higher education, which would provide an opportunity to move to the higher income group, is becoming increasingly unaffordable for low-income groups.

Japan ranks among the worst 25 in the gender gap index.
Japan is free from many of the urgent issues discussed in the chapter such as access to education and access to healthcare. Female life expectancy is the highest in the region.
In contrast to the access to education and healthcare, economic and political participation of women are rather limited, counted among the worst 25.
The proportion of women in parliament is much lower than other developed countries in the region, although the rate alone does not necessarily indicate women are politically empowered, as suggested by the evidence in South Asia. Nevertheless, the gender gap in political empowerment also scores very low.∞