Commentary: Japan's slowdown and its impact on Philippines

The current Japanese economic slowdown has long been seen coming, but the East Asian country somehow managed to pull through because of the relative strength and stability of the economy. As early as the latter part of the 90s, economists claimed that the main culprit of the economic recession was demography. After the Second World War, Japan was in total disarray because it has too many obligations after losing the war. Japan was economically ruined but managed to recover in a short span of time because of a rather disciplined approach to economic recovery.

After its epic rise, pound for pound, Japan had been dubbed as the strongest economy not only in Asia, but in the world. It was an observation well accepted until recently when Japan's economy encountered a mild crunch.

Japan had been dubbed as the strongest economy not only in Asia, but in the world. It was an observation well accepted until recently when Japan's economy encountered a mild crunch.

Working against Japan is the quality of its population. It has negative demographic growth rate, one of only four countries with one. Ukraine topped the list of countries with natural decrease in birth rate (0.8 percent), while close behind are Russia and Belarus (0.6 percent).

According to a study, Japan has a 0-percent increase in natural births, and is expected to further lose 21 percent of its population by 2050 (shrinking from 127.8 million to a mere 100.6 million in 2050). More than other considerations, the aging population of Japan is poised to be a blow to its efforts of sustaining development.

This is not because older people cannot be engaged in development, but because younger people are better equipped to contribute. As those who are stronger physically and mentally, they are hard pressed to sustain the economy and support the elderly population. What is unfortunate is many of Japan's young people do not have the same capacity for work and their elders had.

What is unfortunate is many of Japan's young people do not have the same capacity for work and their elders had.

The Japanese yen has been experiencing among its strongest phases against the US dollar. More than its commendable performance against other currencies, it has created more problems than solutions to the local economy. Relative to this, "Japan's exports have now fallen for 10 consecutive months, the longest losing streak since losses on US subprime mortgages sparked a global financial crisis that crippled the US financial system," according to a report.

Government intervention may only be the immediate solution to address the quandary by way of pegged value against the US dollar. But this may apply only locally. Intervention, however, may be unable to stop the yen's rise, unless investor's controls or trims back expectations for US interest rate hikes.

To make matters worse for Japan's trade balance, the yen has risen 20 percent versus the dollar so far this year and further gains would cut deeply into exporters' earnings. Deflationary pressure, moreover, is increased by lowering import prices.

Implication to Philippine economy

Japan was the country's top trading partner in 2014, accounting for $19.15 billion in total trade. The amounts to 15 percent of the country's total trade. Exports to Japan totaled $13.9 billion while imports were valued at $5.252 billion, posting a trade surplus of $8.649 billion.

The Philippines' trade with Japan amounts to 15 percent of the country's total trade.

The Philippines has seen increased trade with Japan over the last two years—from a total trade of $17.27 billion in 2013 to $19.11 billion in 2014. Expectations, moreover, are ripe on the bullish moods of investors to invest in the Philippine economy with the new government.

Japan is a country that has survived the worst of times and weathered all crises. Despite the glitches, a stable economy with enough reserves, we can expect the same in terms of its bilateral relationship with our country. Japan has even pledge dto take an active role in the development of our mass transportation system.

Emmanuel J. Lopez, Ph.D. is an associate professor at the University of Santo Tomas and the chair of its Department of Economics. Views reflected in this article are his own. For comments email: [email protected]