January 31, 2014 2:00 pm JST

Domestic demand fueled Japanese recovery in 2013

TOKYO -- Domestic demand was the engine behind Japan's economic recovery in 2013, with personal consumption driving job growth. Progress was also made in pulling the country out deflation, which the government and the Bank of Japan share as a top priority.

     Consumer spending will temporarily cool off in 2014, however, due to the consumption tax hike planned for April. The invigorating effects of the government's stimulus measures, such as public works projects, will also fade. Achieving a sustainable recovery will require boosting private-sector demand by increasing wages and capital spending.

     In 2013, Japan's economy recovered from two major setbacks -- the collapse of Lehman Brothers in 2008 and the devastating earthquake and tsunami of 2011. The unemployment rate and the job offers-to-seekers ratio have improved to their highest levels in six years. Also, the consumer price index climbed for the first time since 2008.

     But even with these positive developments, some factors are muting the optimism. The industrial production index stood at 100.3 in December last year, roughly 9% lower than the average for 2008, the year of the Lehman Brothers collapse.