OECD Economic Surveys: Japan 2021
The COVID-19 pandemic hit the economy hard, provoking a marked downturn. Economic activity tumbled as sanitary restrictions restrained consumption and investment. Workers and households with weaker attachment to employment tended to be most affected. However, robust government support and the reopening of the economy led to a partial bounce back. Growth is on course to regain momentum, supported by macroeconomic policies and progress in vaccination. Fiscal consolidation was knocked off course by the crisis and debt has risen even further. A combination of fiscal consolidation and structural reforms is needed to ensure long-run sustainability in the face of demographic headwinds and the costs of meeting more ambitious environmental policy objectives. Pursuing the digital transformation may help boost productivity growth and secure fiscal sustainability. Japan is well placed to benefit from digitalisation, enjoying good infrastructure and skills, though complementary investments are needed. Policies need to facilitate diffusion of new technologies and investment in intangible assets. They also have to ensure that changing demands for skills are met by requisite education and training.
SPECIAL FEATURE: MAKING THE MOST OF DIGITALISATION FOLLOWING COVID-19
Making the most of digitalisation following COVID-19
New digital technologies and big data have created opportunities to address persistently sluggish productivity growth and mitigate the effect of an ageing and shrinking population on the economy amongst other challenges. The Japanese government has embarked on an ambitious plan of digital transformation and businesses are often at the forefront of new technologies. The pandemic accelerated the digital transformation as households, businesses and government switched to new technologies and ways of organising themselves in order to minimise health risks. But the pandemic also exposed shortcomings. Many were underprepared having not made needed investments to exploit these new technologies. While government is pursuing initiatives across a number of areas, weaknesses in linking databases hindered its ability to target support for those most affected by the pandemic. Investment by business is concentrated in larger firms and the dynamism offered by new firms entering the market is limited. Students and workers, while highly trained, can lack the skills needed to exploit fully new digital tools.