essay on japanese economy

Japanese Economy: The Lost Decade Essay

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Introduction

Main body one, main body two, reference list.

The economy of Japan is considered the most controversial still a rather captivating and educative aspect of Japanese development. Japanese achievements are not that higher in comparison to those of the United States of America and China, still, the history of Japanese economic development has to be considered. According to Teranishi (2005), the economy of this particular country has become noticeable due to “various Japanese-style properties: a firm system based on seniority wages and life-time employment, a bank-dominated financial system with an active role for main banks, heavy government involvement through industrial policy” (p.3). There are three main periods in the history of theJapanese economy after the World War Second: the time when “the Japanese economy lay in total ruin” (Maswood 2002, p. 1), the “economic miracle” (Kopstein & Lichbach 2005), and the lost decade that is known as the period of considerable economic slowdown with numerous inability to take the control over the banks’ actions. The changes which are observed with the Gross Domestic Product (GDP) to predetermine the economic well-being help to realize how significant each period for Japan was. In the Table One, the graph of how GDP varied during the period between the 1980s and the 2010s aims at showing how dramatic the changes could be: unbelievably high rates were observed in 1988 as a result of the post-war miracle that contained effective cooperation of distributors, manufacturers, and banks, numerous unions of powerful enterprises, and lifetime employment and gradual decline that was inherent to 1998 due to the already supported ideas of bank speculations and inabilities to cope with massive borrowings. However, the results achieved tin 2009 prove that the slowdown observed in 1998 was not the most terrible period in Japanese economy.

This is why it is very important to evaluate and to understand the essence of the idea offered by Klingner & Scissors (2009) who admitted that to call the period of 1990s as the lost decade in Japan “is a mistake – the loss has extended well beyond the 1990s. The economy is now smaller than it was the first quarter of 1991, so Japan is actually approaching its second lost decade”. Of course, it is important to choose the steps and make everything possible to overcome the current crisis. However, it is also necessary to realize how to support the recovery for some period of time and overcome the challenges the way they will never bother the country in the nearest future. Japan introduces the example of how radical steps may negatively influence the development of the country’s economy.

In comparison to other countries which may compete with Japan to take the leading position, it is necessary to define the United States as the world leader and China as the Asian leader. As Teranishi (2005) pointed out that “the Japanese economy experienced a relatively high rate of economic growth, as evidenced by an increasing share of world GDP” for a long period of time (p.11). In Table Two, it is possible to observe the rates of Japan GDP as well as the rates of different countries during more than a century. These calculations show that Japan is one of the countries that did not take some catastrophic and unpredictable steps. Their rates are always gradually arranged:

In fact, it is evident that the ‘lost decade’ expanded considerably during the last years, and it is difficult to define its boundaries. This is why it seems to be effective to investigate the macroeconomic and microeconomic aspects over the last decade and explain the essence of structural and monetary activities taken by the Japanese representatives to save their economic sphere and gain benefits from their investments. Japan has evaluated the conditions under which it has to be developed and found out that certain changes have to be made on a microeconomic basis: the implementation of the structural reform should lead to numerous benefits which help to revitalize the Japanese economy, to enhance the growth, and to secure the desired recovery within the shortest periods of time. In spite of the fact that the Japanese economy remains to struggle with the structural reforms which are dated from the beginning of the 1990s, the existed deflationary gap becomes an intrinsic dilemma in the economic order. As Gao (2001) says the chosen economic dilemma has to reveal the mechanism with the help of which the institutional change and some kind of exogenous shock may be linked logically.

Numerous microeconomic activities in Japan are usually based on the reforms which aim at improving the productivity and changing the structural aspect of the economy (Sato 1999). Japan as many other countries like the USA, the UK, or even Australia made an attempt to rely on the best practice microeconomic policy and open up different markets to competitions with the help of which the process of restructuring could be possible. The example of the most successful structural reform was offered by Lin in 2005. The ideas introduced were based on the possible cooperation between the American and Japanese representatives in the form of an interior equilibrium (Lin 2005). This equilibrium is formed by means of the weakest keiretsu that are the banks, manufacturers, and distributors which have been united during the period of the Japanese economical miracle united in order to improve the economy (Australian Government 2005). In the Table Three, the results show that banks of different levels underwent considerable changes during the post-war period, and the actual lending rates which are based on the borrowings offered are not stable.

Numerous keiretsu unions are able to ensure the collaborations to invest in the development of the Japanese economy. Still, they are not powerful enough to provide the member with long-term profitability (Kim 1998), this is why it is necessary to make use of the main bank that has governmental support as well as a good reputation on the world market.

To struggle with the structural problems, Japan should also evaluate overseas markets in order to compensate for the necessary amount of domestic industries. Export and import of Japan were small during the ‘lost decade’, and it was obligatory to increase the rates of trade both export and import. And it is possible only in case of transformation of the industry and the structure of the trade in order to become more reliant. It is not enough to focus on the automobile or electronic industry that is popular in Asian and European countries. However, the improvement of cosmetic, food and sundries manufacturing will be more appreciated by the competitors.

To understand better the essence of the economic problems and choose the most appropriate steps, it is crucially important to realize the reasons and the challenges which made Japan neglect the success of the bubble-driving miracle, be overwhelmed with the speculations as well as suffer because of stagnation. The observations made by Dasgupta (2009) help to understand that the period of ‘lost decade’ is considered to be an economic as well as socio-cultural change in Japanese history, this is why the changes and difficulties should be evaluated from all these three perspectives. Collective socio-cultural anxiety is one of the reasons why Japan could not continue its economic development during the 1990s. At the beginning of the 1990s, Japan lost its national confidence; this is why certain shifts took place. In addition to personal uncertainty, Japan has to solve the challenges which came from the United States. “America’s comeback was bound up with an orthodox economic strategy of fiscal prudence and continued economic openness, reinforcing central premises of the tree traders” (Kunkel 2003, p. 193). Constant American involvement in Japanese economic activities prevented the required development and improvement of the conditions under which the lost decade was able to develop considerably. It was hard to control the financial activities which predetermined the relations between different keiretsu as well as between the international potential partners. It was clear that some American demands could not be understood and considered by the Japanese representatives, still, it was defined that American pressure may lead to the required success and productivity. “With Japan no longer much of an economic competitor and the U.S. also grappling with the financial crisis, Tokyo could offer reciprocal proposals with some chance of seeing them accepted by Washington” (Klingner & Scissors 2009). In other words, the American push may be of formal or informal nature in order to reduce the dependence of the Japanese economy on the weak export and focus on the domestic economy.

Still, the investigations show that American impact on different countries remains to be a serious challenge for such OECD countries like Japan. Even if Japan takes first place among other countries evaluating the productivity levels, the manufacturing levels remain to be smaller. The potential impact of structural reforms on productivity growth is not easy due to the problems with the regulations on the economic performance from America’s side. Still, a number of attempts have been already made to support the economic development; though the results are a little bit sensitive (Callen, Ostry, & International Monetary Fund 2003), Table Four shows that Japanese attempts are still the most successful.

Microeconomic reforms taken during the lost decade to improve the conditions got were usually directed towards considerable improvement of living standards. The way of how this improvement could be achieved was closely connected to the increasing of productivity and efficiency and some macroeconomic impacts which have to be admitted. During the 1990s, Japanese account deficit and growing debts due to constant borrowings attract attention. Many people truly believed that microeconomic reforms will reduce the deficit spreading over the county. Taking into consideration the changes which took place with the Japanese banks and corporations at the microeconomic level, it was important to take the steps which could improve the conditions from the inside at the macroeconomic level. This is why in addition to the outside structural changes; the decision to change the working conditions was made. Macroeconomics is the field that deals with the economic behaviour, and the change of Gross National Product is usually predetermined by the changes in employment and working conditions. Microeconomic change based on working hours may lead to the desirable changes of macroeconomic policy, this is why much attention was paid to the working hours. Sato (1999) admits that “when the slow growth period started, hours declined to around 175 hours per month or 2,100 per year” (p. 35); and before that period, working hours were about 200.

The chosen reform should make some Japanese tradeable industries more competitive: costs were reduced, workers’ needs were met so that they were inspired enough to offer more brilliant ideas for improvement.

Unfortunately, it seemed to be very difficult for the government that has a significant portion of control to take the steps and improve the macroeconomic policies such as monetary and fiscal reforms (Itoh 2010). The point is that the Japanese people will hardly allow some uncontrolled tax increase in case they are not confident in the possibilities of their government to cut down all wastes sufficiently. This is why the government should create a proper plan to encourage fiscal restructuring and to promote long-term sustainability that will touch upon all aspects of the Japanese economy. Such confidence is required to promote appropriate recovery as well as support the country after the recovery is successfully passed.

At the beginning of the 1990s, the makers of macroeconomic policies in Japan underwent certain challenges which have domestic and international origins. Japanese fiscal policy was characterized by numerous economic weaknesses caused by passivity and the desire to avoid risks within a short period of time. However, Japanese indecision in the economic field deprives this country of making some decisions independently. This process is based on the investors’ opinions who find the way and remain to be large shareholders (Cohen 2001). Grimes (2001) admits that “Japan’s macroeconomic pathologies have included an excessive reliance on monetary policy to solve large-scale macroeconomic problems and an extreme aversion to loosening fiscal policy”, and it is very important to underline that all “these pathologies were not the result of incompetence or corruption on the part of policymakers; rather, they were structural in nature” (p. xviii).

The last decade was rather educative for Japanese economic policymakers. First, their mistakes made them re-evaluate their possibilities and their relations with different countries. What the Bank of Japan did was wait until it was too late to take some steps and improve the situation about the incipient deflation problems (Siebert 2004). The results of such inabilities to evaluate the current conditions and learn from the activities taken and the mistakes made were expected: the real growth rate decreased considerably within a short period of time. In Table Six, a dramatic fall may be observed.

Taking into account the results identified and the conditions under which the Japanese people have to live today Flath (2005) and some other researchers are bothered with one and the same question: whether such mistaken macroeconomic policies did cause the mess. Well, it is true that fiscal policy and the changes within it may cause fluctuations in aggregate demand that leads to recessions. It becomes clear from the following example how aggregate demand may be changed: interest rates are bid up, and citizens are not that interested to be enriched by means of non-interest-bearing money (Flath 2005). And such ignorance of money-making results in a significant increase in aggregate demand. And in case the interest rate falls suddenly, the desire to hold wealth in the money form increases, and aggregate demand decreases. And the Japanese government failed to act quickly as soon as the Bank of Japan got into trouble: disclosure of loan problems should gain priorities to define the correct measurements (Matsuda 2000).

In general, the lost decade in Japan serves as one of the most educative and captivating period to deal with. A number of macroeconomic and microeconomic policy-making processes are observed, and the purpose of each policy is unique. Still, all of them aim at improving the economic situation of the country and identifying the weaknesses which prevent the development. The nature of the lost decade is rather clear: after a considerably growth in numerous spheres at the same time, the Japanese people believed that they had huge powers and the banks believed in their abilities to provide many people with the required economic support and financial aid. However, the banks failed to protect the economic bubble developed, and the result was evident: the termination of the bubble and the huge crash in stock markets. It was not enough for the country to choose the most effective steps and take all of them quickly. It was much more important to take the leading position in the world arena and make other countries admit the power of Japan economy. And the Japanese people made a decision to enrich themselves due to the existed low interest rates and huge land values; and as a result of such actions, a number of borrowings were taken at the expense of foreign stocks and the banks had to under the governmental control. Taking into consideration the borrowings offered, it was hard to overcome the debt crisis: banks became unable to cope with the borrowings, this is why they was obliged to bailed out by the Japanese government. The outcomes were evident: rise of unemployment, necessity to take reforms, and change of working hours. People were in need of some changes to understand their worth and to realize their abilities, and the period called the lost decade was the time when it was obligatory to identify the changes and the needs of the Japanese people. The way of how the Japanese government was able to react to the crisis was all about the revival of growth. The activities chosen by different organizations such as investments and money-making by means of interest rate are the most successful examples of how policymakers may improve the situation. The structural reforms are taken, numerous deregulations and resolutions of the financial crisis are considered to be important elements of the period under discussion. These ideas help to remove the obstacles and cope with the challenges which are usually based on economic globalization. It is difficult to avoid the economic challenges from time to time, still, it is always possible to choose the most effective approaches and take them into account each time the innovation or reform is offered.

Callen, T, Ostry, JD, & International Monetary Fund 2003, Japan’s Lost Decade: Policies for Economic Revival . International Monetary Fund, Washington.

‘Changing Corporate Asia: What Business Needs to Know’, 2005, Australian Government: Department of Foreign Affairs Trade . Chapter 6: Japan. Web.

Cohen, SI 2001, Microeconomic Policy . Routledge, New York.

Dasgupta, R 2009, ‘The Lost Decade of the 1990s and Shifting Masculinities in Japan’, Culture, Society, and Masculinities , vol. 1, no. 1, pp. 79-95.

Flath, D 2005, The Japanese Economy . Oxford University Press, New York.

Gao, B 2001, Japan’s Economic Dilemma: The Institutional Origins of Prosperity and Stagnation . Cambridge University Press, New York.

Grimes, WW 2001, Unmaking the Japanese Miracle: Macroeconomic Politics, 1985-2000. Cornell University Press, New York.

Itoh, M 2010, ‘The Japanese Economy: Tackling Structural Problems’, East Asia Forum . Web.

‘Japan GDP: Real Growth Rate’, 2010, Index Mundi . Web.

Kim, AK 1998, ‘A Test of the Two-Tier Corporative Governance Structure: The Case of Japanese Keiretsu’, Mark Journal of Financial Research , vol. 21.

Klingner, B & Scissors, D 2009, ‘Japan’s Economic Weakness: A Security Problem for America’, The Heritage Foundation . Web.

Kopstein, J & Lichbach, MI 2005, Comparative Politics: Interests, Identities, and Institutions in a Changing Global Order. Cambridge University Press, New York.

Kunkel,J 2003, America’s Trade Policy Towards Japan: Demanding Results . Routledge, New York.

Lin, C 2005, ‘The Transition of the Japanese Keiretsu in the Changing Economy’, Journal of Japanese and International Economies , vol. 19, no. 1, pp. 96-109.

Maswood, SJ 2002, Japan in Crisis. Palgrave MacMilan, New York.

Matsuda, K 2000, ‘Lessons from Japan’s Lost Decade’, ABA Banking Journal , vol. 92, no.9, p. 128.

Sato, K 1999, The Transformation of the Japanese Economy . East Gate Book, New York.

Saxonhouse, G, Stern, RM, & Saxonhouse, GR 2004, Japan’s Lost Decade: Origins, Consequences and Prospects for Recovery . Blackwell Publishing, Malden.

Siebert, H 2004, Macroeconomic Policies in the World Economy . Springer, New York.

Teranishi, J 2005, Evolution of the Economic System in Japan . Edward Elgar Publishing, Northampton.

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• Introduction

After World War II

The role of government, agriculture, forestry and fishing, resources and power, manufacturing.

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economy of Japan

The Japanese economy is the fourth-largest in the world, as measured by gross domestic product (GDP). Japan has a market economy that grew extraordinarily quickly for several decades after World War II . During the 1990s, however, Japan’s economy entered a decades-long period of stagnation, with its growth rate much lower than that of other industrialized countries.

Japan’s economic growth after the 1940s was based on unprecedented expansion of industrial production and the development of an enormous domestic market, as well as on an aggressive export trade policy. Japan has developed a highly diversified manufacturing and service economy and is one of the world’s largest producers of motor vehicles , steel , and high-technology manufactured goods (notably consumer electronics). The service sector has come to dominate the economy in terms of its overall proportion of the gross domestic product and of employment.

The emphasis on trade stems from Japan’s lack of the natural resources needed to support its industrial economy, notably fossil fuels and most minerals. In addition, the limited amount of arable land in the country forces Japan to import much of its food needs. Generally, however, Japan’s strong domestic market has reduced the country’s dependence on trade in terms of the proportion trade contributes to the GDP when compared with that of many other countries.

The Japanese economy lay utterly devastated at the end of World War II (1945). The immediate postwar period was one of hard struggle to achieve reconstruction and stability. Under the Allied occupation forces, land and labor reforms were carried out, and the plan for creating a self-sustaining economy was mapped out by American banker Joseph Dodge. The outbreak of the Korean War in 1950 created a huge demand for Japanese goods and set off an investment drive that laid the foundations for a long period of extraordinary economic activity. While investment in plants and equipment was spurred by an expanding domestic market, Japan also began pursuing strong export policies. Growing demand overseas for Japanese goods led to annual trade surpluses, which (with a brief interlude in 1979–80) became perennial by the late 1960s.

By the early 1970s Japan’s rapid rate of economic growth had begun to slacken, as the price of imported petroleum soared, labor costs increased, the value of the national currency, the yen , rose against foreign currencies , and overall global demand for Japanese goods weakened. In addition, distortions resulting from the earlier quick pace of growth had begun to show: Japan’s standard of living had not increased as rapidly as had the overall economy up to that point—in large part because of the high percentage of capital reinvestment in those years—but also Japan was under increasing pressure from its trading partners (notably the United States) to allow the yen to appreciate even more in value and to liberalize strong import restrictions that had been enacted to protect Japan’s domestic market.

By the mid-1980s Japan’s standard of living had increased to the point that it was comparable to that found in other developed countries. In addition, in 1985 Japan agreed with its trading partners to let the yen appreciate against the U.S. dollar, which led to a doubling of the yen’s value within two years. This action and other efforts at restraining exports encouraged Japanese companies to begin moving production bases overseas. At the same time, a speculative “bubble” arose in the prices of stock shares and real estate , and its bursting at the beginning of the 1990s sparked a severe economic downturn . The Nikkei 225 average (the main stock index of the Tokyo Stock Exchange ), which had reached an all-time high in 1989, dropped to only half that much within a year, and housing prices in urban areas also plunged.

Economic growth was essentially stagnant throughout the 1990s—in what came to be known in Japan as the “lost decade”—even though a variety of economic policies were adopted and tried. The country experienced a serious recession at the end of the decade. Conditions improved after the turn of the 21st century, though growth rates were modest and were punctuated with periodic slumps. However, by 2000 Japan was facing the fact that an increasing number of postwar “baby boom” workers would be retiring, while, with the country’s population growth also stagnant, fewer young people would be entering the workforce. In addition, Japan, like the rest of the world, was hard hit by the global economic recession that began at the end of 2007 and took hold in earnest in 2008. Nonetheless, Japan continued to have one of the world’s highest per capita GDPs, and it experienced continued annual trade surpluses until the global recession following the financial crisis of 2007–08 .

Japan’s system of economic management is probably without parallel in the world. Though the extent of direct state participation in economic activities is limited, the government’s control and influence over business is stronger and more pervasive than in most other countries with market economies. This control is exercised primarily through the government’s constant consultation with business and through the authorities’ deep indirect involvement in banking. Consultation is mainly done by means of joint committees and groups that monitor the performance of, and set targets for, nearly every branch and sector of the economy. Japanese bureaucrats utilize broad discretionary power rather than written directives to offer “administrative guidance” in their interaction with the private sector in order to implement official policies. However, since the early 1990s, efforts have been made to limit the use of such unwritten orders, which have been castigated for creating an atmosphere of collusion between the authorities and big business.

There are several agencies and government departments that concern themselves with such aspects of the economy as exports, imports, investment, and prices, as well as with overall economic growth. The most important of these agencies is the Economic Planning Agency, which is under the Ministry of Economy, Trade, and Industry (until 2001 the Ministry of International Trade and Industry) and, apart from monitoring the daily running of the economy, also is responsible for long-term planning. The practice of long-term planning has been a major force in the functioning of the Japanese economy. According to the economic objectives of the government, various policy measures have been used to shift the allocation of resources among industrial sectors and to influence the organization of specific industries.

Control has been underpinned by the detailed regulation of business activities, particularly in the financial sector. However, by the early 1990s reducing government intervention in the economy had become a major objective of the authorities. This was viewed as a way to create new business opportunities and as a necessity for making Japanese domestic markets more accessible to foreign business, thus revitalizing what was then a moribund economy. A number of deregulation packages to remove and ease controls subsequently were introduced and implemented.

In the 1980s the government relinquished to the private sector its monopolies over the tobacco and salt industries and domestic telephone and telegraph services, and the publicly owned Japanese National Railways was privatized as the Japan Railways (JR) Group . Most of the remaining public corporations are special-purpose entities (e.g., for nuclear power generation) that would be unprofitable to operate privately or are government financial institutions. The government also retains an interest in radio and television broadcasting. It remains active in matters deemed to be of strategic interest, notably nuclear power generation, which is subsidized through a major program to increase generating capacity.

Because of the country’s mountainous terrain, the supply of agricultural land is limited. Japan’s largely infertile and immature soils require careful husbandry and fertilization. However, Japan’s relatively wet climate provides the country with considerable freshwater supplies. The general reliability of the precipitation pattern, coupled with Japan’s extensive network of rivers that can be used for irrigation, make possible extensive wet-rice (paddy) cultivation.

Agricultural production has remained relatively stable since the 1990s; however, for many years agriculture has accounted for only a tiny fraction of the GDP. The agricultural sector continues to employ a relatively large proportion of the working population compared with its contribution to national income, but many farmers have left agriculture for employment in manufacturing and the service sector, and most others rely on outside occupations for a substantial part of their income. As younger people left the farms, the median age of farmers rose steadily.

Japanese agriculture is characterized by a large number of small and often inefficient farms. Larger farms generally are found in Hokkaido , where units of 25 acres (10 hectares) or more are fairly common. The country’s principal crop is rice . Other important farm products include wheat , barley , potatoes , fruits, vegetables, and tea .

The government’s agricultural policy has encouraged self-sufficiency in the more important commodities, although that goal has been achieved only for rice and sweet potatoes (and by 2000 domestic production for both commodities was less than what was needed). Thus, in reality, nearly half the country’s food requirements must be imported. A central feature of the policy of self-sufficiency has been strong protection for local rice production and an artificially high producer price for rice. Legislation enacted in 1995 sought to introduce market principles in the agricultural pricing structure and to place more importance on the needs of consumers. Rice imports were partially liberalized that same year, and the ban on imported rice was removed in 1999, though steep customs duties have remained in place.

Livestock raising, an important farming activity, is generally practiced on a small scale; the largest dairy and beef cattle herds are in Hokkaido. Most feeds must be imported, and production costs are high. In addition, after beef imports were liberalized in 1991, foreign competition began forcing farmers to adopt more efficient production methods and sped up the process of creating larger, more commercial livestock operations.

Timber resources are extensive, consisting of broad-leaved and coniferous forests, but much of the forestland is located in inaccessible mountain areas. Most of the forest area is privately owned, and much of it is distributed among a large number of relatively small holders. The rest is publicly owned; large-scale reforestation has taken place in these areas, especially those that were excessively logged before and during World War II. However, despite Japan’s considerable forest cover, forestry is a marginal activity. In part this is because of the inaccessibility of many of the best stands, but it is also because the domestic logging sector is highly unprofitable, beset with high labor costs, an aging workforce, and other inefficiencies. Even with the addition of limited logging in reforested areas, domestic production cannot come close to satisfying Japan’s huge demand for timber, and the great bulk of Japan’s wood needs are imported.

Japan relies heavily on the sea as a source of food. It has one of the largest fish catches of any country in the world, much of it derived from long-distance deep-sea fisheries. In spite of its dominant international position, the Japanese fishing sector faces some serious problems. Local fisheries are depleted by overfishing and pollution, especially in the Inland Sea, while deep-sea fishing must contend with restrictions placed upon it by countries that claim a 200-nautical-mile (370-km) economic zone in their coastal waters.

The number of workers engaged in fishing has declined sharply, and, as with agriculture, the fishery worker population has aged rapidly. Thus, domestic production has been edging down for decades, and imports of fishery products exceed exports. Aquaculture of fish, shellfish (notably clams and oysters), and seaweed is of increasing importance; in addition, cultured pearls long have been significant.

With few exceptions, Japan’s mineral reserves are small, and the quality of those mined is often poor. Coal , iron ore, zinc, lead, copper , sulfur , gold , and silver are among the most abundant minerals (in relative terms), with lesser quantities of tungsten, chromite, and manganese. Japan also has large deposits of limestone. There is an almost complete lack of nickel, cobalt, bauxite (the ore of aluminum), nitrates, rock salt , potash, phosphates, and crude petroleum and natural gas .

Coal reserves are concentrated in Hokkaido and Kyushu . Oil deposits are meager, domestic oil production accounting for a negligible fraction of Japan’s oil consumption. The main oil- and gas-bearing belt extends from northern Honshu on the Sea of Japan to the Ishikari-Yūfutsu lowlands in Hokkaido. Natural gas reserves also have been found in eastern Chiba prefecture and offshore east of Tōhoku. Japanese iron ore is of poor quality and is obtained mostly from northern and western Honshu. Reserves of copper, once Japan’s most important metallic ore, are nearly depleted; lead and zinc are often found in conjunction with copper.

Mining and quarrying

Mining is an unimportant and declining branch of the economy. The extractive industry is characterized by small and relatively inefficient mines that do not lend themselves to the application of modern, large-scale mining methods. With the exception of gold extraction, mining for metallic ores plummeted in the early 21st century. Mining for iron and copper essentially ceased after 2000, and Japan now imports virtually all its needs for those two ores. Other metallic ores of economic significance include silver, lead, and zinc. Limestone quarrying is widespread throughout the Japanese archipelago.

Coal, the most important mineral mined throughout most of Japan’s industrial period, is now extracted as a marginal operation. The coal industry suffers from uneconomic production, competition from cheaper foreign coal, and the general use of oil since World War II. Most of the remaining production is in Hokkaido. Virtually the whole of the country’s output of petroleum and natural gas comes from Niigata prefecture. Natural gas also is produced in Chiba and Fukushima prefectures.

The rate of Japan’s consumption of energy leveled off in the mid-1990s, after having increased steadily for decades. Per capita consumption of electricity is comparable to that for most industrialized countries, but that for oil and natural gas is considerably lower. The largest single source of energy is oil; almost the entire demand is satisfied through imports, an important share of which comes from fields developed by Japanese companies. Coal, largely imported, constitutes a much smaller proportion of overall consumption. Gas production is greatest for natural gas and liquefied natural gas and in terms of energy output is comparable to that for coal.

Most of Japan’s total electric power is generated by thermal plants. For decades oil was the most important fuel source, but generation by coal-fired plants has increased significantly as part of the effort to reduce Japan’s dependency on foreign oil. Also of growing importance are power stations burning liquefied natural gas, especially as a means of reducing levels of greenhouse gases and other pollutants emitted.

Since the 1970s the government has promoted an energy policy that favors the development of nuclear power generation as a nonpolluting, domestically produced energy source. This program raised the contribution of nuclear power to approximately one-third of the country’s total installed electric-generating capacity. Several dozen nuclear plants are now in operation throughout the country.

As a result of Japan’s mountainous terrain, the country’s ample hydroelectric potential is distributed unevenly. In addition, many hydroelectric power plants cannot operate at full capacity for more than a few months of the year, because of seasonal variations in precipitation and the difficulty of constructing adequate storage facilities. Hydroelectric development is largely concentrated in central Honshu (along the Shinano, Tenryū, Tone, and Kiso rivers), in Tōhoku, and in some parts of Kyushu. This pattern of distribution ensures that Japan’s hydroelectric capabilities are well located in relation to the important industrial areas. Although there is still undeveloped potential, the best sites already have been utilized for large plants, and further additions to capacity have consisted of smaller-scale operations. In addition, a number of pumped storage plants have been constructed, in which water is pumped up to a reservoir above the hydroelectric facility during off-peak hours to be released for power generation during periods of peak demand.

The most notable feature of Japan’s economic growth since World War II is the rapid development of manufacturing, with progress in quantitative growth, quality, variety, and efficiency. Emphasis has shifted from light to heavy industries and to a higher degree of processing. Thus, some of the older industries, including lumber and wood processing and the manufacture of textiles and foodstuffs, have declined considerably in relative importance.

Japan is one of the world’s principal shipbuilders and automakers and is a major producer of such basic products as crude steel, synthetic rubber, aluminum, sulfuric acid , plastics, cement, pulp and paper, a variety of chemicals and petrochemicals, and textiles. It has some of the world’s largest and most-advanced industrial plants. In the late 20th century the most spectacular growth was in the production of motor vehicles, iron and steel, machinery (including robots), and precision equipment (notably cameras). Subsequently the country became noted for advanced electronic products, including computers and microelectronics, telecommunications equipment, and consumer goods.

A principal reason for Japan’s postwar industrial performance was the high level and rapid growth of capital investment, especially in the 1960s and ’70s. A boom in equipment investment provided the iron-and-steel and machine-building industries with a rapidly growing home market, allowed for a spectacular increase in productive capacity and in the scale of operations, and led to a rapid replacement of old machinery. This in turn resulted in considerable improvement in productivity throughout the economy and enabled manufacturing industries to grow, despite an acute shortage of skilled labor and rising wages. The extensive use of technological innovations and the implementation of superior production systems gave many sectors of Japanese manufacturing a formidable advantage over their rivals, and as a result the country’s exports soared. Another strategy, which was pursued in part to reduce trade friction with foreign competitors and also to cut costs as the yen appreciated in value, was to set up overseas facilities in parts of Asia, North America , and Europe. This approach was carried out with particular success by manufacturers of automobiles and advanced electronic products.

The existence of close-knit corporate groups, in what is called the keiretsu system, has played an important role in the successful structural adjustments Japanese industry made to changing economic circumstances. Through extensive crossholding of company stocks, keiretsu groups collaborated on long-range strategies aimed at garnering market share without regard to short-term profit and managed the risks of manufacturing, distribution, and sales. Such actions were made possible by the gradual relaxation and increasingly flexible interpretation of the country’s antimonopoly laws enacted after World War II that had broken up the old zaibatsu conglomerates. However, the system has weakened over time, as changes in the financial environment made Japanese industry more willing to enter tie-ups, mergers, and takeovers that cross traditional keiretsu boundaries.

• Japan: The Rapid Economic Development Words: 1269
• US – Japan Economic Relations in WWII Words: 1718
• The Old and the New Economy Characteristics Words: 1489
• The Market Economy and Capitalism Words: 3477
• The Features of an Ideal Economy Words: 580
• Japan as a Technological Leader of the World Words: 1633
• Japanese Economy and Politics Now Words: 280
• Japan’s Aggressive War and Sino-Japanese Relations Words: 1665
• Historical Trauma of Japanese Former Colonies Words: 5568
• Japan’s Culture, Geography, Government, Economy Words: 782
• Circular Economy as an Emerging Trend Words: 1112
• Renewable Energy in Japan: Clean Energy Transition Words: 1438
• Intercultural Business Communication in Japan Words: 2344
• Environmental Impact Assessment: Japan Words: 896

The Economy of Japan

State of economy.

Japan has been known as one of the countries with the most advanced economy and the best-developed entrepreneurship. In 2017, Japan’s GDP reached $4.873 trillion, which made it the world’s third most economically prolific country in the world (Central Intelligence Agency). Similarly, other economic indicators have proven that Japan’s economy is on the rise, with unemployment rates having dropped from 3.1% in 2017 to 2.9% in 2018 (Central Intelligence Agency). The inflation rate has risen slightly (from -0.1% to 0.5%), whereas the retail sales have dropped to a greater extent (from -2.10 to -2.90) (“Japan Retail Sales”). In turn, the interest rate has been at the 0.1 mark for several years, with the further changes being unlikely (“Japan Interest Rate”). However, while the current rates of the economic development place the Japanese economy at the third spot in the global ranking, there are certain issues about which the Japanese government should be concerned, namely, the deflation caused by the economic bubble of 1989.

Export Analysis

The current state of Japanese import is rather stable, especially in regard to its relationships with Canada (“Report – Trade Data Online”). The observed trend is quite expected Japan’s natural resources are rather restricted due to its specific geography and location. Therefore, constitute the bulk of the current import from Canada to Japan. Most of the export belongs to the brand names of Toyota and Mitsubishi.

Table 1. Export (Canada to Japan) (“Report – Trade Data Online”)

As the table above shows, Japan has been extraordinarily prolific in its car manufacturing industry, as well as its relationships with foreign customers. The extent of export has been growing consistently, in no small measure due to the rise in the automotive industry. As the table above shows, the amount of products needed for sustaining the industry, including copper ore and coal briquettes, is quite ample. Similarly, raw cobalt and nickel, which are also used in the automotive industry, have been imported from Canada to Japan in rather substantial amounts.

However, apart from the supplies required to sustain Japan’s transportation industry, Canada’s import to Japan also includes wood and packaged medicaments. The specified trend can also be explained by the scarcity of natural resources in Japan caused by its specific geography. It is also noteworthy that the rate of importing from Canada to Japan has increased significantly for some products, while having dropped for others. For example, there has been a continuous and quite tangible trend with food exports from Canada to Japan, which is similarly explained by the scarcity of food resources in the latter. Apart from its location, the devastating effects of WWII are still echoing in the Japanese economy, which defines the need to utilize the support and food resources provided by other states. Canada, in turn, can be described as quite prolific in its food industry due to the vast range of the relevant resources and the capacity to produce assorted types of food (Welch 446). Therefore, the food exports from Canada to Japan have been growing increasingly.

Arguably, the extent of food exports from Canada to Japan could use more explanation since the population growth rate in the latter has been on slight decline recently. According to the available statistical data, the population decline of Japan has been barely noticeable yet consistent over the past decade, which is mostly attributed to the phenomenon of population aging (Katagiri 18). As the average life expectancy of Japanese citizens increases, the percentage of newborns has been dropping, leading to the aging of Japanese society (Welch 447). The propensity toward population aging has defined the type and number of products that Japan currently needs to import to a significant degree.

The need for coal briquettes has also been systematically growing in Japan. While the need to transfer to a more sustainable type of fuel and environmentally friendlier sources of energy has become more apparent recently, a significant part of Japan is powered by the energy obtained from coal (Tabuchi). Furthermore, the trend for Japan to import coal is expected to be on the rise in the nearest future based on the recent announcement made by the Japanese government: “a coal-burning power plant, part of a buildup of coal power that is unheard-of for an advanced economy” (Tabuchi par. 1). According to the latter, there are plans to build a greater number of coal plants to produce more energy and, thus, the increasing need for more coal to be imported from Canada (Tabuchi).

However, there is another trend in the current picture of the Japanese import from Canada, which has been enhanced to a considerable extent by the increase in the influence of innovative technology and the recent scientific breakthroughs. Namely, the demand for medical instruments and the related devices is a signifier of a change in the Japanese approach toward managing health concerns. In addition, the trend in purchasing a greater number of medical instruments overseas, specifically, from Canada, aligns with the tendency toward population aging in Japan described above. While the general health rates are impressively high in Japan, the health-related needs and concerns of aging people require improved quality of healthcare and more effective tools for diagnosis and treatment. Thus, the need for imported medical tools and instruments of the highest quality emerges.

Another peculiar trend in the export from Canada to Japan includes pork, the demand for which has been increasing steadily but surely. At first glance, the observed situation is not quite surprising since pork constitutes a crucial part of a range of traditional Japanese dishes and, therefore, is frequently requested by buyers. However, it is worth remembering that a range of Japanese farmers also grow pigs to sell them on local markets (Tabuchi). Therefore, the rise in demand for pork raises the question of whether Japanese citizens refuse to support local farmers or whether the current rates of farming are not enough to satisfy the demand for pork.

Currency Analysis

Another important characteristic of the economic development observed within a state concerns changes in its currency rate. In Japan, yen is used as the national currency, with one yen being equal to roughly $0.009 (Belke and Volz 41). The stated number represents the evidence of a gradual yet noticeable decline in the value of a yen as the Japanese currency (Belke and Volz 4). As Figure 1 shows, the monthly changes in the exchange rate for yen are quite unstable, with the beginning of February showing a gradual decline in the value of the currency, and the second half of the month representing a quick rise in its value from 81 to 84 yen being equal to one dollar. While the specified leap might not seem as important in the grand scheme of the relationship between the Canadian dollar and the Japanese yen, it is still representative of the lack of stability in the Japanese currency market.

The observed trend of the Japanese yen first dropping in value and then gradually increasing aligns with the fiscal deficit and the desperate attempts of the Japanese government to stimulate the state’s economic performance by using artificial catalysts. According to Belke and Volz, the phenomenon of negative yen recessions can be clearly observed in the fluctuations of the yen exchange rate since 2008 when the infamous crisis hit Japan (3). Therefore, the uneven development of the exchange rate is a quite expected phenomenon under the specified circumstances in Japan. The chart above shows that the exchange rate of yen has dropped sharply recently as the Canadian dollar increased in value (see Figure 1). Indeed, there have been issues with the management of the dropping rate of the Japanese currency recently, which has not led to any tangible results.

The reverse correlation between the Japanese yen and the market stock prices is another issue to be discussed. According to recent reports, the opposite connection between the specified variables is explicit since the stocks have ben systematically moderate in their value while yen plummeted down and its exchange rate became increasingly worse (Hughes). According to the assessment performed by Hughes in 2018, the described situation mirrors exactly what Japan has been undergoing since the infamous recession of 2008:

“You’ve had a lot of people come in and buying the Topix via leveraged ETFs [exchange traded funds] — and hedging that,” says Nicholas Smith, Japan strategist at CLSA. “Now with the Topix falling they’re dumping those bets and those hedges — and buying back yen in the process. (Hughes)

Therefore, the current problem can also be blamed on the inefficient use of hedging where it should not have been deployed in the first place, leading the country to further economic stagnation. However, the reverse correlation located between market stock prices and the exchange rate of yen suggests that a strategy for handling the crisis can be located and employed correspondingly. Namely, export led growth can be pursued as a possible solution.

A similar trend in the Japanese yen showing the lack of stability in its fluctuations in connection with the Canadian dollar can be observed when comparing the changes that took place the past year. In fact, on the annual scale, the fluctuations of the Japanese currency turn out to be even harsher, with abrupt shifts from an increase in its value to an equally sharp decline. The described peaks and valleys are representative of the outcome of the financial crisis mentioned above and the attempts of the Japanese government to amend the situation artificially.

One could argue that the charts represented above signify a step forward in the management of the challenges that the Japanese economy has been suffering recently. Reports published recently claim that the present state of the Japanese economy represents a much healthier policy and a significant improvement (Hughes). For instance, according to the analysis published in Forbes in 2019, the actual situation is significantly more nuanced: “The Japanese economy today is arguably healthier than it has been in over a decade, with annual GDP growth averaging 1.3% since 2012, again according to the IMF, double the 0.63% average in the previous decade” (Hedrick-Wong). Therefore, the wavering exchange rate of the Japanese yen compared to the Canadian dollar can be explained as the aftermath of the previous long-term economic recession and is not representative of the current attempts at managing the financial problems.

Nevertheless, a more recent assessment of the scenario observed in Japan shows that the state’s economy is currently flagging and is at a place of high uncertainty. For instance, the increase in the VAT rate in Japan is very untimely and is likely to lead to detrimental outcomes (Inman). Inman also suggests that the utilization of hedging in the management of financial resources is the main reason for the exchange rate of yen not to plummet immediately but, instead, move in zigzags. According to Abdel-Khalik, hedging is:

A method of reducing the risk of loss caused by price fluctuation. It consists of the purchase or sale of equal quantities of the same or very similar commodities, approximately simultaneously, in two different markets, with the expectation that a future change in price in one market will be offset by an opposite change in the other market. (Abdel-Khalik 109)

Therefore, the application of hedging is believed to be one of the main factors that shape the exchange rate of the Japanese yen. In turn, Hughes quotes Mitul Kotecha, who convinces that the correlation between the use of hedging and the distorted nature of the yen exchange rate is not to be ignored: “’Everyone is talking about huge, huge outflows. But we think they’re increasingly being hedged and that’s limiting their effect” (Hughes). Consequently, it is fair to suggest that there a pressing need to determine the exact correlation between the application of hedging strategies to the Japanese financial market and the deviations from the norm observed in the jen exchange rate.

Overall, the assessment of the fluctuations in the exchange rate of yen points to the increasing weakness of the currency in question in general, and in relation to Canadian dollar, in particular. The specified issue raises the concern of whether the strategy geared toward the reinforcement of the currency is legitimate given that it will entail a drop in the market shares value. Thus, the next step that needs to be undertaken in order to amend the situation in Japan is to enhance the performance of its key companies. Thus, japan will be able to secure its place in the global economy and focus on the strategies for addressing its export and import issues.

In addition, it will be necessary to assess the competitiveness of yen by industry to create a map of the problematic areas in the current landscape of the Japanese economy. Thus, the Japanese government will be able to use the identified assets of the state to the benefit of entrepreneurship and economy, simultaneously taking time to address the weaknesses that hamper the Japanese economic progress.

Implications for Trade

The current trend within the Japanese economy has direct and rather unfortunate implications for trade. The uneven exchange rates and the issues related to the export and import of crucial products define the choices that Japanese authorities make in regard to trade with Canada. Overall, the current implications for trade include a possible drop in the amount of imported products and the likely chance of quality reduction in the exported goods. Since the specified alterations will affect the Japanese economy even more adversely, a change in the choice of investments and the further development of China’s leading industries, including the automotive one, is likely to occur.

Since Japan is presently in a very conflicting economic situation that is highly likely to hamper its further progress, the existing export endeavors are quite scarce. As explained above, with the automotive industry being one of the highlights of Japanese entrepreneurship, vehicles and vehicle parts are likely to constitute the basis of exports from Japan to Canada in the future. While Canadian car manufacturers have quite a lot of competitors in the Canadian market, including American car producing organizations, the properly set quality to price ratio may help Japan to handle the situation and gain the competitive advantage needed to remain a powerful figure in the Canadian automotive market.

The conflicting nature of the present situation in the Japanese economic setting requires the consistent inflow of products and materials for sustaining the performance of Japanese organizations. However, with the intermittent progress of Japanese exchange rate, the financial opportunities for purchasing the necessary raw materials and products overseas may be shrinking for Japan. Consequently, the model for export relationships with Canada will have to be based on careful and thorough considerations of the weaknesses of the Japanese economy. For instance, the recent decision to boost the levels of export by cutting the yen price could be seen as a temporary solution, yet more drastic changes are currently required for long-term improvements.

The described forecasts are justified by the long-lasting relationships between Japan and Canada. Taking introspect into the history of their economic and diplomatic ties, one will discover that Canada and Japan are bound by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) along with four other countries (namely, Australia, Mexico, New Zealand, and Singapore) (Government of Canada “Canada-Japan Relationships”). CPTPP was expected to encourage closer connection between Western and Asian pacific states, with quite substantial success. However, the restrictions that the present regulations impose on the participants of the agreement may lead to dire outcomes for Japan unless its attempts at improving the state economy turn out to be effective.

In addition, when discussing the current financial and economic situation in China, one will need to touch upon the possibility of the repatriation of profits. Defined by Beatty et al as the scenario in which “an investing company pulls its earnings out of a foreign country and takes it back home,” the concept of profits repatriation implies the opportunity to avoid a financial collapse and, thus, prevent an economic crisis from unraveling (Beatty et al. 221). The use of profit repatriation can be considered the ultimate measure that should be applied when no other tools for keeping the state economy afloat cannot possibly be utilized. Indeed, depending on the specifics of the contract signed with the recipient of investments, the option for using profit repatriation may not be available on a regular basis, which is why the application of the said approach can be viewed as the decision taken when other strategies for business recovery are impossible.

In the context of Japan and the problems that it has been having with importing products from Canada and exporting them to it, the use of profit repatriation may become a grim necessity given the observed signs of economic recession. In addition, when considering the idea of profit repatriation as the means of holding the state economy together, the Japanese government will have to take the side effects of their decision into consideration. For Japan, the repatriation of profits from Canadian organizations with which Japan businesses have ties will imply several major consequences. The disruption of economic and business partnerships is on of the major concerns that needs to be remembered since it will have direct outcomes in the future. Once profit repatriation is utilized with Canadian companies, the latter may become unwilling to collaborate with Japanese organizations in the future. The described outcome concerns not only the firms that will use the repatriation of profits as the means of escaping bankruptcy but also Japanese business, in general, thus depriving other Japanese organizations o potential partnerships with Canadian entrepreneurship. Given the vast opportunities that collaborating with Canadian organizations provides for the Japanese business currently, taking the described step will jeopardize Japan’s future success.

In addition, when considering the repatriation of profits as the possible leeway in managing the risks associated with financial losses, Japanese entrepreneurs should keep in mind that the Canadian repatriation tax rate is quite high (Inman). While the Canadian government has been trying to introduce more lenient standards for foreign companies that collaborate with Canadian organizations and use their investments, the current legislation restricts the opportunities for Japanese businesses to save money when using the repatriation strategy as the means of avoiding large risks (Abdel-Khalik). Therefore, the tax issue presently poses a major impediment for Japanese companies in regard to the management of the financial risks within the Canadian investment market.

However, at this point, the specifics of the economic collaboration between japan and Canada needs to be addressed. While the tax issue is likely to become a major source of discord in case Japanese entrepreneurs decide to cease their performance in the Canadian market, the existing regulations may alleviate the negative consequences for Japanese entrepreneurs. The Canada-Japan Income Tax Convention signed in 1986 and amended in 1999 states that both parties should be protected from unfair use of the existing regulations and, therefore, provides an opportunity to reduce the impact that the current Canadian taxation system will have on Japanese companies. According to the regulation, “The profits of an enterprise of a Contracting State shall be taxable only in that Contracting State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein” (Government of Canada). Thus, while the regulation does not specify the details of the repatriation tax, it implies that all business parties involves must follow a rigid set of rules aimed at reducing the probability of fraud or tax evasion.

The present-day state of the Japanese economy leaves much to be desired since the state is still recovering from the recession that it witnessed in the late 2000s. Therefore, the national currency rates have been fluctuating quite noticeably and showing the clear lack of stability within the state economic system. While the Japanese government has been making efforts to control the situation and implement damage control, very little effect has been produced so far. Nonetheless, the levels of export and import remain roughly the same, which indicates that Japan is ready to continue its relationships with Canada. However, due to the challenges linked to the financial disturbances within the state, it is critical for the Japanese government and business owners to be wary of the economic and financial risks associated with the Canadian market. Since some of the projects may not return the profits that they are expected to bring, some of the investments will have to be rejected, which will entail the payment of retribution taxes according to the Canadian law.

Therefore, reinforcing the role of economic standards and legal regulations is critical for Japan present. By using the set of standards that the specified regulation system offers, one can guarantee that the needs of Japanese entrepreneurs are met fully and that the issues concerning investments and the related concerns are resolved.

The economy of Japan has sustained quite a substantial amount of damage over the past decade due to the economic collapse that occurred in the 2000s, as well as the failed attempts of the Japanese government to revive the economy. As a result, the current performance of the state’s business organizations leaves much to be desired as very few leaders dare to take the risk and invest in the enterprise that may turn out to be a financial failure. As a result, the state has not been attempting at experimenting with the products that it exports to Canada and imports from it. The described strategy, while being very safe and cautious, allows Japan to maintain its automotive industry running and delivering the revenues of the expected rate.

For this reason, it will be necessary to revisit the principles that the 1994 act set as standards. Specifically, it will be necessary to pay closer attention to the implications of the tax-related requirements, which will define the extent of opportunities that Japanese companies can expect when attracting investors from Canada.

In addition, the approach toward importing and exporting products, Japan will need to shape its relationships with Canada and its market. While the automotive industry has to be kept afloat so that Japan could export its manufactured vehicles and vehicle parts to Canada, it will be necessary to reduce the expenses taken to import and export products. The specified change can be achieved by altering the supply chains created by Japanese organizations.

Moreover, with its automotive industry being at the forefront of the country’s economy, the increase in demand for metal and, specifically, copper and aluminum, as well as coal, is expected to happen in the nearest future. The implications for import are quite evident, with the demand for coal along with copper and aluminum increasing exponentially. As a result, Japan will need to reinforce its relationships with Canada as one of the main sources of the specified products and the most advantageous price-quality correlation. Along with coal as one of the main sources for fuelling the production, Japan will also require a greater amount of wood to be imported from Canada. Namely, wood pellets as the essential source of energy to power Japanese manufacturing plants will be needed in greater quantities. Therefore, the focus will have to be kept on obtaining sustainable resources.

As for the exporting options, Japan is likely to continue to provide Canadian customers with vehicles and vehicle parts since car manufacturing constitutes the largest portion of the country’s GDP. Arguably, one could state that Japan may need experimenting with its export potential since its economy requires an immediate revival. However, changing the current framework for managing its economic relationships may cost Japan a massive amount of financial resources. Unless Japanese entrepreneurs locate the opportunity that will guarantee an immediate success, further economic downfall will inevitable. Due to the losses that Japan has suffered in the 2000s, risking to invest in the ventures that may turn out to have no potential is something that the government and entrepreneurs cannot afford. Therefore, following the set course for the enhancement of the automotive industry should be regarded as the most beneficial opportunity.

Works Cited

Abdel-Khalik, A. Rashad. Accounting for Risk, Hedging and Complex Contracts . Routledge, 2013.

Beatty, Jeffrey F., Susan S. Samuelson, and Patricia Abril . Business Law and the Legal Environment. Cengage Learning, 2018.

Belke, Ansgar, and Ulrich Volz. “The Yen Exchange Rate and the Hollowing out of the Japanese Industry.” Open Economies Review, 2020, vol. 1, no. 1, pp. 1-36.

Central Intelligence Agency. “Japan.” CIA.gov , 2019, Web.

Government of Canada “Canada-Japan Relationships.” CanadaInternational.gc.ca , 2019, Web.

Government of Canada. “Convention between the Government of Canada and the Government of Japan.” Canada.ca , Web.

Hedrick-Wong, Yuwa. “Japan’s Richest 2019: Why Country’s Zombie Economy Is Finally Staggering Back To Life.” Forbes , 2019, Web.

Inman, Phillip. “Japan’s Economy Heading for Recession, and Germany Wobbles.” The Guardian , 2020, Web.

“Japan Interest Rate.” TradingEconomics.com , 2020.

“Japan Retail Sales.” TradingEconomics.com , 2020.

Katagiri, Mitsuru. “Economic Consequences of Population Aging in Japan: Effects Through Changes in Demand Structure.” The Singapore Economic Review , 2018, vol. 1, no. 1, pp. 1-23.

“Report – Trade Data Online.” IC.GC.ca , 2020, Web.

Tabuchi, Hikoro. “Japan Races to Build New Coal-Burning Power Plants, Despite the Climate Risks.” New York Times , 2020, Web.

Welch, David A. “It’s Time to Think Boldly about Canada–Japan Security Cooperation.” International Journal , vol. 74, no. 3, 2019, pp. 445-452.

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The Bubble Economy and the Lost Decade

Common Core Standards College and Career Readiness Anchor Standards for Reading

• Standard 1.   Read closely to determine what the text says explicitly and to make logical inferences from it; cite specific textual evidence when writing or speaking to support conclusions drawn from the text.
• Standard 9.   Analyze how two or more texts address similar themes or topics in order to build knowledge or to compare the approaches the authors take. 
• Standard 11.     Respond to literature by employing knowledge of literary language, textual features, and forms to read and comprehend, reflect upon, and interpret literary texts from a variety of genres and a wide spectrum of American and world cultures.

College and Career Readiness Anchor Standards for Writing

• Standard 11.    Develop personal, cultural, textual, and thematic connections within and across genres as they respond to texts through written, digital, and oral presentations, employing a variety of media and genres.

College and Career Readiness Anchor Standards for Speaking and Listening  

• Standard 3.   Evaluate a speaker’s point of view, reasoning, and use of evidence and rhetoric.

McRel Standard 6. Uses reading skills and strategies to understand and interpret a variety of literary texts

World History

McRel Standard 45. Understands major global trends since World War II

Japan's impressive growth during the Bubble Economy of the 1980s  and subsequent challenges of the Lost Decade of the 1990s caused the Japanese to debate questions of national identity and their role in the global economy.

In small groups, have students write down and then compare the first words that come to mind when thinking about the Japanese economy.  The class will focus on the changes in the economy and how those changes (and their perception) affected Japanese ideas of national identity and purpose.

Have students list three consequences--social, economic, or international--of Japan's Bubble Economy and the Lost Decade.

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Why Japanese markets have plummeted

The global rout continues, with the topix experiencing its worst day since 1987.

A s fears of an American recession spread, stockmarkets around the world have suffered. But none has taken as severe a beating as Japan’s. On August 5th the Topix plunged by 12% in its worst performance since 1987, compared with falls of 2-3% in America, Britain and Europe. The index is now almost a quarter below its peak, reached barely a month ago. The yen, meanwhile, is snapping back: it is up 13% from less than a month ago, when it was at its weakest in 37 years. These sharp moves carry implications not just for Japanese investors and firms. The country’s financial heft means that they could become a source of further volatility in nervous global markets.

Topsy-turvy markets reflect changes in monetary policy. Over the past 18 months the yen sank as America’s Federal Reserve raised interest rates and the Bank of Japan stood still. The “carry trade”, where investors borrow cheaply in yen to make higher-yielding investments in dollars or euros, flourished, sending the Japanese currency lower still. The weaker currency then enhanced the foreign earnings of Japanese firms, and enticed foreign investors into the Japanese stockmarket. In 2023 and the first half of 2024, they snapped up ¥9trn ($60bn) in stocks.

Now things are unwinding. The Bank of Japan has taken baby steps to tighten policy. On July 31st it raised its benchmark rate from around 0.1% to around 0.25%. The Fed, by contrast, is expected to begin cutting rates soon. Anticipation grew on August 2nd after the release of America’s jobs report, which showed the economy had added 114,000 jobs in July, below the 175,000 expected by investors.

A modest move in rate differences has been amplified by a rapid turnaround in speculative bets. Investors had crowded into short yen trades—bets on a further depreciation in the Japanese currency—according to data from the American Commodity Futures Trading Commission. Such one-way traffic can cause sudden shifts in the other direction, as speculators abandon their trades and cover their losses, bidding up the yen in the process.

The spiking yen has, in turn, fuelled a stockmarket collapse. The rally had been led by Japan’s exporters, which benefit almost mechanically from a weaker currency, as they make most of their money overseas but report earnings in yen. Now they are suffering. Margin bets on Japanese stocks—trades made with borrowed money—had reached the highest level since 2006 before the sell-off began. These leveraged investments now appear to be being unwound at pace, explaining why market darlings are suffering some of the biggest falls. The share price of Tokyo Electron, a vital supplier of semiconductor kit, fell by 18% on August 5th. Japanese banks are down by 27% in the space of two trading days.

For now, the slump appears to be driven by this unwinding of speculative bets. Few analysts think Japanese firms are in deep distress, or fear for the stability of the country’s financial system. Nonetheless, rapid changes in Japan can have knock-on consequences. As interest-rate moves make the carry trade less viable, they could fuel a sell-off in far-flung corners of foreign markets. Japan is also the largest creditor in the world. The country’s investors owned $10.6trn in foreign assets at the end of last year. They have become big buyers of American and Australian collateralised-loan obligations, for instance. If the stronger yen means these investors need to dump foreign holdings to meet liabilities at home, that could weaken asset prices while driving the yen still higher. Just how much further the yen has to rise, and Japanese stocks to fall, remains to be seen. But until investors’ speculative bets fully unravel, expect choppy market conditions. ■

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Introduction

• Published: June 2022
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This opening chapter describes what the book is about, how it is organized, and who it is for. The book is all about the Japanese economy, past and present, and is for anyone who is curious about Japan. It is also written for anyone who is interested in economics, whether new to the subject or an expert. Each chapter can be read independently from the others and be understood but the chapters are arranged in a logical sequence. The book begins with a discussion of Japan’s current high level of well-being and the economic history from the sixteenth century to the present that led to this outcome. This is followed by explorations of the Japanese economy in our time—roughly, from 1965 to the present—arranged according to subfields of economics, starting with macroeconomic topics, and proceeding to microeconomic ones. Four themes run through all the chapters: Japan’s economic growth and development, Japan’s integration with the world economy, Japanese government policies and their effects, and Japan’s peculiar economic institutions and practices.

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The Japanese Economic Review

• Publishes theoretical and empirical research across the whole field of economics.
• The official publication of the Japanese Economic Association.
• Welcomes submissions from researchers both within and outside of Japan.
• Recognized as the Japanese counterpart of The American Economic Review.
• Committed to publishing innovative and thought-provoking contributions with strong relevance to real economic issues.
• Yuichi Kitamura
• Kazuko Nakata

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Latest issue

Volume 75, Issue 2

Latest articles

Robustness in binary-action supermodular games revisited.

• Daisuke Oyama
• Satoru Takahashi

The impact of the Bank of Japan’s exchange traded fund and corporate bond purchases on firms’ capital structure

• Thuy Linh Nguyen

Evidence on price stickiness in Japan

Pass-through and tax incidence in Cournot duopoly with loan commitment

• Leonard F. S. Wang

The 2023 Japanese Economic Association Nakahara Prize: Recipient—Prof. Toru Kitagawa, Brown University and University College London

Journal updates, japanese economic review (jer) special issue: “heterogeneity and macroeconomics” call for proposals.

Guest Editors: Toshihiko Mukoyama (Georgetown University) Makoto Nakajima (Federal Reserve Bank of Philadelphia)

The Japanese Economic Review (JER) would love to solicit proposals for a special conference on “Heterogeneity and Macroeconomics.” The conference will be hosted by Meiji University, in Tokyo, Japan, on August 22 (Thursday) and 23 (Friday), 2024 . All papers accepted for the conference will be considered for publication in the special conference volume of the JER in April 2025.

Announcing the winner of the 2023 JER Best Article Award for The Japanese Economic Review

Call for papers on "demographic change and wellbeing in japan and asian economies".

Guest Editors: Professor Yasuyuki Sawada (University of Tokyo)

Submission Deadline: December 10, 2023

Note on the Policy of the JER Editorial Board on the Recently Found Problems with the Monthly Labor Survey of Japan

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