Japan’s economic expansion set to become longest in post-war era
Japan’s expansion has run for 74 months, with nominal GDP and corporate profits rising while inflation and near-flat real wages constrain household spending.
- Japan's current economic expansion has reached 74 months, making it the longest period of growth since the Second World War, surpassing the previous 73-month record.
- Despite its record length, the expansion's benefits are not being felt by households, as wage increases have been nullified by inflation, leading to near-zero real-wage growth and sluggish consumption.
- The period is distinguished by significant inflation (2.1% average), which contrasts with previous long expansions that saw near-zero inflation.
- While nominal GDP and corporate profits have hit record highs, real GDP growth remains modest and comparable to past booms, indicating limited underlying economic strength.
Japan’s economic expansion may be historic in duration, yet its benefits remain difficult for households to detect.
Preliminary government figures place the upswing at 74 months through July, putting it on course to overtake the 73-month “Izanami” boom of February 2002 to February 2008 as the longest since the Second World War.
Large wage increases negotiated between labour and management have not translated into a substantial improvement in purchasing power.
Pay rises secured through the annual “shunto” negotiations exceeded 5% for a third consecutive year in 2026, but average real-wage growth remained close to zero and personal consumption stayed sluggish.
Inflation has distinguished the current period from Japan’s previous long expansions.
Consumer prices increased by an annual average of 2.1%, compared with 0.0% during the Izanami boom and 1.1% during the later Abenomics-era expansion.
A senior Cabinet Office official said the economy “has almost levelled off although it is not deteriorating”.
Against that inflationary backdrop, nominal indicators presented a stronger picture.
Annualised nominal gross domestic product reached 689 trillion yen in April-June this year, compared with 528 trillion yen in the same quarter of 2020, according to Cabinet Office data.
Corporate earnings also reached unprecedented levels, with the steep depreciation of the yen providing some support.
Ministry of Finance figures released earlier this month showed that combined ordinary profits among manufacturing and non-manufacturing businesses, excluding financial and insurance companies, increased for a seventh consecutive quarter in April-June and reached a record high.
Real output, however, indicated limited underlying vigour.
Mitsubishi UFJ Research and Consulting calculated that real gross domestic product grew by an average annualised rate of 1.3% quarter on quarter from October-December 2020 to April-June this year.
The calculation excluded July-September 2020, when economic activity rebounded sharply from the slump caused by the Covid-19 pandemic.
That pace was broadly in line with the 1.6% average recorded during the Izanami boom and the 1.4% achieved during the 71-month expansion from December 2012 to October 2018.
The latter period was supported by the Abenomics reflationary policy mix pursued under then prime minister Shinzo Abe.
The current cycle followed the economy’s pandemic-era trough in May 2020, with the expansion beginning the following month as Japan moved from prolonged deflation into inflation.
Preliminary Cabinet Office figures released on September 7 showed further improvement in the index of coincident economic indicators.
Whether the current period is formally recognised as Japan’s longest post-war expansion will be decided after a panel of experts under the Cabinet Office reviews the economy’s cyclical peaks and troughs.
Shinichiro Kobayashi of Mitsubishi UFJ Research and Consulting said the key to escaping an economic expansion that people struggled to feel was “whether we can curb inflation and the yen’s excessive weakening and wipe out concerns about the future by stabilising the social security system, thereby creating an environment in which people can use their money with peace of mind”.
[Copyright The Jiji Press, Ltd.]
