Japan, often referred to as the “Land of the Rising Sun,” presents a fascinating economic case study. Unlike many Western nations grappling with high inflation and rising interest rates, Japan experiences low inflation and low-interest rates, largely attributed to its ongoing monetary easing policies. These policies have led to the depreciation of the yen against the dollar, making Japan an attractive destination for international tourists, leading to a surge in shopping sprees while encouraging Japanese citizens to travel within the country rather than abroad – due to the increased cost of international travel. This unique economic environment is shaped by Japan’s corporate culture, consumer behaviour and evolving workforce dynamics. However, these benefits come with challenges. The depreciation of the yen can increase import costs, affecting businesses reliant on foreign goods.
Corporate Culture and Consumer Behaviour
Japanese corporate culture plays a significant role in maintaining economic stability. Unlike Western companies that often raise prices to offset rising costs, Japanese firms strive to keep prices stable. This commitment to stability is exemplified by incidents such as a popsicle maker apologising for a minor price increase, the first rise since 1991. This price sensitivity reflects a broader consumer behaviour trend in Japan, where consumers often delay purchases anticipating price drops, demonstrating a high level of patience and prudence.
Employment Trends and Challenges
Japan’s employment landscape is unique, marked by a rise in gig and short-term temporary work. While this has contributed to increased workforce productivity, it still faces demographic challenges. As such, the number of foreign workers in Japan has exceeded 2 million for the first time, marking a record high as the country struggles with a worsening labour shortage.
By the end of October 2023, the foreign workforce had grown to 2,048,675, an increase of 225,950 from the previous year. This growth also reflected a rise in the number of technical trainees, a figure that had previously declined during the COVID-19 pandemic. Additionally, the number of workplaces employing foreign workers reached 318,775, up by 19,985 from the previous year, setting another record high.
While Japan transitions towards greater automation and robotics, a significant shift in immigration policy may be necessary to address labour shortages.
The OECD Employment Outlook 2024 highlights that Japan’s labour market has been resilient and remains tight, with historically high employment levels and low unemployment rates. As of May 2024, Japan’s unemployment rate stood at 2.6%, projected to decline to 2.4% by 2025. This stability is partly due to the increased employment of older individuals, offsetting the decline in the working-age population. Notably, the female employment rate has continued to rise, reaching 73.7% in May 2024, reflecting ongoing efforts to integrate women more fully into the workforce.
However, gender inequalities persist. Japan has the fourth-highest gender pay gap among OECD countries at 21.3%, and women continue to bear a disproportionate burden of unpaid care and domestic work. The Basic Policy on Gender Equality and Empowerment of Women 2024 aims to address these issues, including expanding wage transparency rules to smaller firms.
Real Wages and Economic Reforms
Real wages in Japan have been affected by various factors, including global economic conditions and domestic inflation. From Q4 2019 to Q4 2023, real hourly wages in Japan dropped by 2%. The war in Ukraine and the weakened yen have pushed headline inflation above 2% since April 2022, leading to a continuous decline in real wages for 25 months up to April 2024. However, recent annual spring wage negotiations showed greater momentum, with the Japan Trade Union Confederation (Rengo) reporting a nominal pay rise increase from 3.6% to about 5%.
To mitigate the impact of rising prices, the Japanese government introduced a new tax deduction of JPY 40,000 per person from June 2024 and plans to reinstate subsidies for electricity and gas bills from August to October 2024. Despite these measures, inflationary pressures are expected to continue affecting nominal wage growth.
Digital and Green Transformation
Digital and green transitions are key drivers of Japan’s future growth. Promoting digital transformation across sectors is essential to enhancing productivity and innovation. The demand for digital and AI-related skills is projected to grow significantly, with over 3 million workers needed in this area by 2028. Focusing on sustainability goals, Japan is transforming sectors such as energy and transportation. Skills related to environmental sustainability will be in high demand, with over 2.5 million workers needed to support green initiatives.
Japan is embracing digital and green transitions as key drivers of future growth. The government’s focus on economic and structural reforms, increasing private sector involvement, boosting domestic production and expanding national infrastructure sets the stage for significant economic advancement. Investments in transportation networks, digital infrastructure and sustainable energy projects are expected to create numerous job opportunities and support economic growth.
Employment Outlook: Growth Opportunities and Challenges
Japan’s employment landscape is undergoing significant changes due to global megatrends and recent adverse shocks, including the COVID-19 pandemic and geopolitical tensions.
The transition to net-zero emissions by 2050 is expected to lead to substantial job reallocation. Some jobs will disappear, new opportunities will emerge and many existing jobs will be transformed. Japan displays a higher-than-average share of green-driven occupations and a lower-than-average share of greenhouse gas (GHG)-intensive occupations. This suggests potentially high demand for skills relevant to green-driven occupations and lower costs of job replacement from GHG-intensive occupations.
Government Initiatives Boosting Growth
In June 2023, the Japanese government unveiled an updated plan for Prime Minister Fumio Kishida’s ‘new capitalism’ initiative, aiming to boost investments in people, start-ups, green and digital transformations and innovation to drive economic growth and tackle societal issues such as wage stagnation and climate change. This revised strategy emphasises increasing wages and productivity to create a cycle of sustainable growth and fair income distribution. Key aspects include labour market reforms focused on reskilling, career flexibility and mobility into high-growth sectors. The plan also includes significant measures to support start-ups, enhance household incomes through diversified investments and improve the overall socio-economic system with effective government mobilisation of private sector efforts.
Conclusion
Japan’s strategic investments, robust economic performance and favourable global trends make it well-positioned for substantial economic growth. By embracing digital and green transformations, investing in infrastructure and implementing active labour market policies, Japan is poised to create a dynamic and inclusive labour market that supports sustainable growth and resilience against future challenges. This blend of traditional corporate culture with forward-thinking policies makes Japan a unique and compelling economic model for the rest of the world.
