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Economy of Japan

Japan economy currently, is the second largest in the world coming behind the United States of America. It is estimated that Japan has a per capita Gross National Income of 34,510 as at 2003. In relation to the purchasing power parity (PPP) in terms of GNI it was $ 27,460 as at 2003. The country had an average annual growth rate of 2. 6% in 2004. Japan economy recovered from the ruins of World War II when it was termed as “less developed” to “developed” country. According to available records Japan recorded a GDP (gross domestic product) of $ 3. 67 trillion.

As a result of the fall of “bubble economy” in the 1990s the GDP growth of Japan stagnated, and good performance was achieved between 1995 and 1996. The government of Japan is currently undertaking widespread deregulation of several economic sectors with the aim of creating a more effective economy. In the corporate sector, significant changes are taking place which have seen an increased competitiveness between companies as they fight to increase their competitive edge. Good government policies, increased demand of Japanese goods and high growth of Asian economy are some of the factors that contributed to high economic growth of Japan.

(Economy watch, 2007) Real GDP/GNP Gross domestic product is an inclusive evaluation of Japan’s general production and consumption of goods and services. GDP is used as a principal measure of total economic stability. GDP figures generally conform to the expectations of Japan. Gross domestic product in Japan grew at roughly 1. 5% per annum, from 1991 to 1999 as compared to the 1980s when it was 4%. The 1990s saw growth in Japan slow down. However, from 2003 the GDP started to grow highly at a rate of 2. 0% this GDP growth has remained steady up to 2004.

During 2005 the GDP growth rate moved to 5% which translates to $ 4. 9 trillion, and it is estimated that it will steadily continue to increase. The chart below shows the trend of GDP of Japan at market prices as estimated by the International Monetary Fund. The figures are in billion of U. S dollars. Source is (Economy watch, 2007) Unemployment The examination of employment rate in Japan outlines the current number of those people who have no any kind of employment in Japan. The report on the employment rate conveys the current rate and can also be used to forecast the future unemployment rates.

A lower unemployment rate results into high income-earning of the people and high consumption. This high consumption rates expenditures speeds up economic growth. In spite of the improvement in other sectors, many industries still goes through a heavy financial burden from over facilities, extra employees and high debts. Hence, Japan is likely to undergo unprecedented high levels of restructuring and mergers and alliances. The requirement to restructure to carry on is facing many industries to terminate traditional long time employment policies which have increased the unemployment rate from 2.

1% in 1990 to 4. 8 in 1999. As at 2006 the unemployment rate in Japan was at 4. 1%. (Genda, and Ayako, 2006) Trade balance Trade balance is the difference between the net values of exports against the net value of imports. A positive number will point to a trade surplus while a negative number will point to trade deficit. Since the economy of Japan is highly export –led, trade data show that Japan has a trade surplus. Surplus trade show that capital is coming in to Japan International trade in Japan has gone up by 60% moving from 91. 4 trillion yen to 142. 6 trillion yen between 2001 and 2006.

Japan key export trade partners are the united states which a volume trading of 22. 9% followed by china at13. 45 south Korea and Taiwan at over 7. 2%. The country mainly exports transport equipments, electronics, motor vehicle and chemicals. (Genda, and Ayako, 2006) Strengths /weakness of industrial Japan boosts of leadership in industrial development and human resource of technicians, highly educated and industrious human resource. There is also high savings, high investment rates and extensive support of industrial development coupled by health foreign trade has created a full-grown industrial economy.

(Genda, and Ayako, 2006) Strengths Japanese industries have a high financial base and have easily established their branches in other countries such as china, Malaysia and Thailand in order to reduce on costs of production and increase production volumes, it has been noted that these other countries have low labour costs. Companies dealing in manufacturing of electronic products such as VCRs, TVs and refrigerators are the ones which undertook this move. For such industries, their market share of imported products currently exceeds the ones produced on the domestic market.

This method of market globalization and industrial has led to an increased volume of export of component parts and also capital financing at the same time increasing the importation of finished goods. Powerfully competitive industries for example automobile companies are also expanding their production in Europe and in North America. As at 1998 overseas production by Japan industries was accounting for 13. 8% of total production of the industries and the figures continue to rise. There is a strong work ethics, high technology and transport industry that has added success to Japanese industries.

(Van Wolferen, 1990) Weakness The economy of Japan is highly competitive and efficient in the global sector but it has lower productivity in areas such as distribution agriculture and service. Japan witnessed uppermost economic growth rate in the world as from 1960 to 1980s, the economy went through a dramatic slow economy the 1990s when the Japanese “bubble economy” crumpled. Also some industries products are cheap but lack quality. Regional problems Japan witnessed slow growth of economy in 1990s which led to other people to show fear over the competitive abilities of the Japanese industries.

Japanese industries were faced with hard times with the collapse of the “bubble economy” that occurred in the 1990s. Bankruptcies of big financial institutions worsened the recession that was there. This coupled by the Asian economy crisis saw profits of all industries going down. Currently the Asian economy has recovered which have helped the economy of Japan to grow. Van (Wolferen, 1990) Policy-fiscal government spending The current government has attempted to enact privatization and foreign- investment laws which are aimed at stimulating the economy.

Though, some of this laws effectiveness in ambiguous, economy has been observed to respond to them. One of the government body privatized is the Japan post that is valued at $1. 9 trillion which can give the economy a big boost. The government also have formulated a close relation working policy that has ensured cooperation between the government and the industries. In addition, Japanese fiscal authorities have continued with the wish to depress the yen in relation to other important specific currencies so that they can protect the domestic business.

For example in 2003 the authorities intervened and depressed over 17 trillion yens, which is an equivalent to one trillion American dollars. However, of late no intervention has been reported. (Cabinet Office, 2006) Taxes Japan is among countries with the lowest taxes in the world. The government have set a low tax on products and industries so that to enhance the growth of the industries. In terms of the citizens, the Japanese pay as low as 6% value added tax on some products, other essential products are not taxed in Japan.

As for the employed the government tax them moderately to cater for the services the government provides. (Cabinet Office, 2006) Borrowing /deficits Japan has a strong economy; however, the country has a public debt/internal borrowing of 176. 2% of its national GDP as at in 2006, in the same year Japan external debt/external borrowing stood at $ 1. 547 trillion. These borrowings by the government are used to cover the deficit in budgetary allocation. (Masahiro, 2005) Monetary interest rates,

Monetary policy relates to the regulations, accessibility and credit cost on the other hand fiscal policies relates to government expenditures, debts and taxes. Interest rates in Japan are low. Some institutions like banks charge as low as 4% interest rates. (Cabinet Office, 2006) Baking and credit systems Japan has a well developed banking system and is home to the world largest bank. There is several other credit services provides in the country. It easy to access credit facilities in the country and the credit services are charges are very low.

(Cabinet Office, 2006) Bank lending and borrowing Bank lending is the value of net outstanding loan balances that the banks have. Bank lending is significant since bank lending goes up with an increase in trade confidence and investment. Bank lending is important for Japanese economy especially due to the weakness in the banking sector that had occurred in the recent past in the sector. The banks have lent out substantial amount of money. (Masahiro, 2005) Currency issues Japan uses the yen which has been slowly gaining over other international currencies.

The yen has stabilized and it is widely used on the rate of inflation as at 2006 was estimated to be at 0. 3% meaning that the yen has remained stable in the world markets (Cabinet Office, 2006) Conclusion Sound government policies, high technology and increase in demand of Japanese products have seen Japan develop very highly economically and become the second largest economy in the world. Japan has also managed to reach why it is because of availability of well educated and hard working labour force.

As we Japan continue to realise good economy growth, its industries are coming under great competition due to globalization. However, technologically advancement of Japanese industries has always given them advantage. It remains to be seen that for any countries for have a high economic growth, it must formulate good monetary policies, invest in technology and aggressively market its products.


Cabinet Office (2006): Annual Report on the Japanese Economy and Public Finance 2004. Economy watch (2007): Japan economy: Retrieved from; www. economywatch. com Accessed on 16/10/07 Genda, Y and Ayako, K (2003. ): Review of Structural Unemployment – Background of the Rising Unemployment Rate; ESRI Discussion Paper Series No. 53, Cabinet Office Higuchi, Y et al, (2005). Economic Analysis of Labour Market Design; Toyo Keizai Inc Jansen, R (2000): The Making of Modern Japan, Belk nap, Johnson, G (1996): Japan: Who Governs? W. W. Norton, Masahiro, A (2005): Environmental Changes of Japanese Economy and the Labour Market; Toyo Keizai Inc. Reischauer, B (1989): Japan: The Story of a Nation, McGraw-Hill, Takashi, O (1998): Economics of Japan; Nippon-Hyoron-Sha

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