Japan’s GDP expanded 2.1% in the fourth quarter of 2017 over the same quarter of the previous year. As the following chart indicates, Japan’s economy has been on an improving growth trend with rising prices over the past two years. Economic growth momentum has carried over into the first quarter of 2018 as the unemployment rate recently has dropped to its lowest level in two decades.

The Bank of Japan is still following an ultra-loose monetary policy which is boosting the economy. Japan is also experiencing a rather tight job market and of course the economy is incredibly helped by the resilience of the global economy.

After two decades of near economic stagnation (roughly 1990 to 2009), Japan’s economy began growing rather unevenly after the world’s financial meltdown. Indeed, for much of this recovery period Japan required zero and/or negative interest rates and record high fiscal deficits simply to avoid falling back into a phase of price deflation.

However, over the past couple of years the price deflation worry has lessened, though going forward economic growth will still be hampered by the challenges of an ageing population, a declining labour force, and the mountain of public debt built up during years of on and off-price deflation worries.

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