With the economic narrative in our region dominated by China and the rise (and rise) of India, you could be forgiven for taking your eye off what is happening in Japan. But a $US5 trillion economy isn’t something that can be forgotten.
Once upon a time we referred to Japan as ‘the Asian giant’. Going forward, I think Japan will play a larger role in the discourse around Asia’s economic future.
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Firstly, according to ANZ Research, Japan is the only economy in Asia expected to grow faster next year than its pre-pandemic average.
In fact, it’s the only economy growing well above its average from before the 2008 global financial crisis. Japan stands out in particularly stark terms on that measure. Its economy is very different today compared to the past few decades.
Secondly, the climate transition is a Big deal in Japan. Capital B. I haven't been to an economy in Asia where there is such a focus on this issue from the business sector.
Certainly the net-zero push in Japan seems less government led than you see elsewhere. That focus is also manifesting in a particular way – with a very outward orientation and with an eye on the cutting edge of the technology in this space.
Japan doesn't have the land or climate that some other countries enjoy when it comes to managing the transition. Its heavy-industry sectors, particularly, are hard to abate. So, industry is zeroing in on some of the newest areas of development, such as hydrogen, but also carbon capture and storage. I would expect Japan’s presence in this space to only grow.
Finally, the inflation shift is quite real in Japan. It's very much part of the popular discourse. There’s not much agreement on whether most of it is cost-push inflation, or whether Japan has genuinely entered a self-sustaining cycle of pressure on resources.
In ANZ Research’s view, there is enough change for the Bank of Japan to hike official interest rates in April. It is only likely to be a 10 basis-point move, but that will be sufficient to take rates to zero and formalise the end of Japan’s eight years of negative monetary policy. And that’s a Big deal, too.
Richard Yetsenga is Chief Economist at ANZ
