Why Japan’s economy is on the brink of collapse

By LINDSEY JOHNSONAssociated PressThe Japanese economy is set to contract for the first time in three years and the country’s economy could collapse by up to 40 percent this year, experts said Monday.

In the latest sign that Japan’s battered economy is about to plunge into a recession, the Nikkei 225 stock index fell as much as 2.4 percent, wiping out about half the gains of the day.

Japan has been struggling for years to reverse a decades-long decline in consumer spending and job creation.

The country also has struggled with the aging population.

The government is trying to address the problems, including by lowering the retirement age and cutting public spending, and has sought to bring more foreign investment into the economy.

The Nikkeis gauge is a proxy for Japanese economic activity.

It was last up by about 0.1 percent in May.

Japan is in the midst of its fourth recession in five years, and economists say it could worsen.

The economy has shrunk by a record 9.7 percent in the first quarter of this year.

That was the biggest drop in seven years.

The Nikkeits index is down about 3.5 percent this quarter, and the yen has weakened to an all-time low against the dollar.

Japanese Prime Minister Shinzo Abe’s ruling Liberal Democratic Party (LDP) won a landslide victory in the May election and has pushed ahead with reforms to revive the economy and shrink Japan’s debt burden.

Abe has vowed to spend about 4 trillion yen ($45 billion) over the next decade on public investment, and some of the money is likely to come from overseas.

He said Monday the country is going to spend at least 2 trillion yen over the coming decade to boost employment, stimulate consumption and tackle a host of economic challenges, including a drop in corporate profits and a rise in unemployment.

The government is also looking to boost investment in new technologies, like artificial intelligence, electric vehicles and robotics, said Koji Ohtsuka, an economist at Nomura Holdings Inc. He said the government is willing to help companies invest more money in the U.S. and Europe.

The U.K. has also been pushing Japan to get more investment into its booming tech sector.

The LDP has been trying to revive growth by slashing taxes and increasing government spending on the elderly and disabled, but economists say the government hasn’t succeeded in slowing the economy, and that it is struggling to maintain an effective wage and pension system.

Abe, a wealthy, 73-year-old former prime minister, is seeking a third term in office and is facing a challenge from left-leaning groups that have called for his impeachment.

The country’s labor market is shrinking as young people leave for higher-paying jobs in technology, manufacturing and other industries.

That has helped fuel a sharp rise in government spending as well as a sharp increase in the number of people filing bankruptcy.

Japan’s central bank is also trying to boost the economy by keeping interest rates near zero.

The yen was down 0.6 percent at 93.85 yen per dollar as of 3:33 p.m. in Tokyo.