Investments Shift to Support Domestic Demand

- During an “Economic War of Attrition”-

Saeko MAEDA

  Principal Economist

Katsuaki OCHIAI

  Specially Appointed Fellow

Akira TANAKA

  Senior Economist

Ryo HASUMI

  Specially Appointed Fellow

Chihiro SATO Trainee Economist(Secretariat of the House of Councillors)

   

Takahisa HONDA Trainee Economist(Nikkei Inc.)

   

Shogo YAMASHITA Trainee Economist(Aflac)

   

2018/11/29

JCER Medium-Term Economic Forecast Team

Underpinned by strong economic conditions overseas, the Japanese economy has recently continued its expansion. However, the sustainability of this expansion has come into question, and mid-term economic forecasts require cautious observation.
One reason for this not leading to strong growth is an external factor: the cooling down of the global economy. While there are protectionist policies in some countries that have already had an impact in the short term, there is the risk towards a renewed global economic war of attrition.
Looking at the domestic environment, consumption and investment structures are changing with aging population and the diffusion of new technologies. Because of the increase in the demand for human services such as medical treatment and nursing care in particular, if productivity is not progressed sufficiently amid the decreasing working population, the country will not be able to meet such an increased demand. Thus, it is necessary to change the labor-intensive industry structure via new technologies in fields including ICT and robotics. Although domestic capital investments with labor-saving effects have been on the rise due to increasing corporate revenues recently, these investments have been slack compared to the revenue growth. If businesses prospect lower mid- to long-term economic growth and hesitate to invest in new technologies and human capital, it is unlikely that we will overcome shrinking economy due to labor force shortage.
With the foreseen tough economic conditions overseas, investments tailored to domestic structural changes as well as measures for the activation of human resources will be needed. Focusing the efforts on balancing domestic supply and demand will in turn lead to economic stimulation.