Economic Situation & strategy
August 28, 2023

Japan: eternal sunshine in the land of the rising sun?

Article by Dr Frank Geilfuß

Our otherwise critical media have been outdoing each other for months with expressions of respect and positive comments when it comes to Japan as a business location. "Nippon has awakened" or "the success story is back" is what it says in newspapers, and you rub your eyes in amazement. Wasn't there talk of a dying giant, a deflationary and aging economy in the shadow of China? What is the paradigm shift and how sustainable are the latest developments in the land of the rising sun?

At first glance, the facts are actually surprisingly positive. Thanks to surprisingly high exports, the world's third-largest economy was able to increase its economic output in the second quarter of the current year much more than previously estimated. One of the overriding themes on the stock markets and in the macroeconomic future projections during the first half of 2023 were expectations regarding the progressive involvement of artificial intelligence (AI) in all areas of life. This is also of considerable importance for assessing the economic performance of the Japanese economy in general and the local stock exchange in particular.

Despite all these factors, which should not be neglected, we are assuming that the mood for consumption will tend to decline in the second half of the year, that export growth will slow down and that the economy will slow down noticeably overall. This would also put an end to the ongoing speculation on the capital market that the Bank of Japan could tighten its monetary policy due to the unexpectedly strong growth and persistently high inflation. We consider this unlikely.