Economy of Japan

Template:Economy of Japan table Japan's industrialized, social market economy is the world's third-largest, adjusted to purchasing power parity (PPP), after the United States and People's Republic of China. Also, Japan is the world's second-largest economy by real GDP, nominal GDP and by market exchange rates. Its economy is highly efficient and competitive in areas linked to international trade although productivity is lower in areas such as agriculture, distribution, and services. Government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation have helped Japan advance with extraordinary speed to become one of the largest economies in the world. Its reservoir of industrial leadership, well-educated and industrious work force, high savings and investment rates, and intensive promotion of industrial development and foreign trade have produced a mature industrial economy.

Distinguishing characteristics of the Japanese economy include the cooperation of manufacturers, suppliers, distributors, and banks in closely-knit groups called keiretsu; the powerful enterprise unions and shuntō; cozy relations with government bureaucrats, and the guarantee of lifetime employment (shushin koyo) in big corporations and highly unionized blue-collar factories. Recently, Japanese companies have begun to gradually move away from some of these norms in an attempt to increase their global competitiveness and profitability (the latter due mostly to their increased reliance on equity rather than debt financing).

For three decades, Japan's overall real economic growth had been spectacular: a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s.

Sliding stock and real estate prices marked the end of the "bubble economy" of the late 1980s, and ushered in a decade of stagnant economic growth. These problems may have been exacerbated by domestic policies intended to wring speculative excesses from the stock and real estate markets. Real GDP in Japan grew at an average of roughly 1.5% yearly between 1991-1999, compared to growth in the 1980s of about 4% per year. Growth in Japan throughout the 1990s was slower than growth in other major industrial nations, and the same as in France and Germany. Government efforts to revive economic growth have met with little success and were further hampered in 2000 to 2001 by the slowing of the global economy. However, GDP per worker has increased steadily even through the nineties, given that from 1993 to 2007, 10% of the population distribution moved from the "working age" to "elderly age".

Starting in 2003 Japan's economy began to recover, growing at 2.0% per year in 2003 and 2004, and 2.8 percent in 2005. Unlike previous recovery trends, domestic consumption has been the dominant factor in leading the growth. As predicted, the economic recovery continued in 2006 and 2007. Former Prime Minister Shinzo Abe, who was working on Japan's economic revival, signed a treaty with Saudi Arabia and UAE about the rising prices of oil.

The Japanese economy began to see signs of trouble again in 2008. In January, Ota Hiroko, the Minister of State for Economic and Fiscal Policy, announced that Japan's economy can no longer be considered a 1st class economy due to a number of facts including: a decline in the country’s per capita gross domestic product, resulting in the fall of Japan's GDP per capita to 18th among the 30 member nations of the Organization for Economic Cooperation and Development (OECD) in 2006 and the reduction of Japan’s share of aggregate world income to below 10% for the first time in 24 years.

Given its heavy dependence on imported energy, Japan has aimed to diversify its sources. Since the oil shocks of the 1970s, Japan has reduced dependence on petroleum as a source of energy from more than 75% in 1973 to about 57% at present. Other important energy sources are coal, liquefied natural gas, nuclear power, and hydropower. Demand for oil is also dampened by higher government taxes on automobile engines over 2000 cc, as well as on gasoline itself, currently 54 yen per liter sold retail. Kerosene is also used extensively for home heating in portable heaters, especially farther north. Many taxi companies run their fleets on liquefied gas with tanks in the car trunks. A recent success towards greater fuel economy was the introduction of mass-produced Hybrid vehicles.

Deposits of gold, magnesium, and silver meet current industrial demands, but Japan is dependent on foreign sources for many of the minerals essential to modern industry. Iron ore, coke, copper, and bauxite must be imported, as must many forest products.

Natural resources

A mountainous, volcanic island country, Japan has inadequate natural resources to support its growing economy and large population. Although many kinds of minerals were extracted throughout the country, most mineral resources had to be imported in the postwar era. Local deposits of metal-bearing ores were difficult to process because they were low grade. The nation's large and varied forest resources, which covered 70 percent of the country in the late 1980s, were not utilized extensively. Because of the terrain, underdeveloped road network, and high percentage of young trees, domestic sources were only able to supply between 25 and 30 percent of the nation's timber needs. Agriculture and fishing were the best developed resources, but only through years of painstaking investment and toil. The nation therefore built up the manufacturing and processing industries to convert raw materials imported from abroad. This strategy of economic development necessitated the establishment of a strong economic infrastructure to provide the needed energy, transportation, communications, and technological know-how.

Macro-economic trend

Trend of Historical value of Japanese Yen

This is a chart of trend of gross domestic product of Japan at market prices estimated by the International Monetary Fund with figures in millions of Japanese Yen. See also [1]

Year	Gross Domestic Product	US Dollar Exchange	Inflation Index (2000=100)
1955	8,369,500	￥360.00
1960	16,009,700	￥360.00
1965	32,866,000	￥360.00
1970	73,344,900	￥360.00
1975	148,327,100	￥297.26
1980	240,707,315	￥225.82	75
1985	323,541,300	￥236.79	86
1990	440,124,900	￥144.15	92
1995	493,271,700	￥93.52	98
2000	501,068,100	￥107.73	100
2005	502,905,400	￥110.01	97

For purchasing power parity comparisons, the US Dollar is exchanged at ￥125.16.

Agriculture and fishery

Main article: Agriculture, forestry, and fishing in Japan

Agriculture

Rice is a very important crop in Japan as shown here in a rice paddy in Autumn, Kurihara, Miyagi prefecture.

Only 12% of Japan's land is suitable for cultivation. Due to this lack of arable land, a system of terraces is used to farm in small areas. This results in one of the world's highest levels of crop yields per unit area, with an overall agricultural self-sufficiency rate of about 50% on fewer than 56,000 km² (14 million acres) cultivated.

Japan's small agricultural sector, however, is also highly subsidized and protected, with government regulations that favor small-scale cultivation instead of large-scale agriculture as practiced in North America.

Imported rice, the most protected crop, is subject to tariffs of 490% and was restricted to a quota of only 7.2% of average rice consumption from 1968 to 1988. Imports beyond the quota are unrestricted in legal terms, but subject to a 341 yen per kilogram tariff. This tariff is now estimated at 490%, but the rate will soar to a massive 778% under new calculation rules to be introduced as part of the Doha Round.

Although Japan is usually self-sufficient in rice (except for its use in making rice crackers and processed foods) and wheat, the country must import about 50% of its requirements of other grain and fodder crops and relies on imports for most of its supply of meat. Japan imports large quantities of wheat, sorghum, and soybeans, primarily from the United States. Japan is the largest market for EU agricultural exports. Apples are also grown, mostly in Tohoku and Hokkaidō; Pears and Oranges are mainly grown in Shikoku and in Kyūshū. Pears and Oranges were first introduced by Dutch traders, in Nagasaki in the late 18th century.

Fishery

Japan ranked second in the world behind the People's Republic of China in tonnage of fish caught—11.9 million tons in 1989, up slightly from 11.1 million tons in 1980. After the 1973 energy crisis, deep-sea fishing in Japan declined, with the annual catch in the 1980s averaging 2 million tons. Offshore fisheries accounted for an average of 50 % of the nation's total fish catches in the late 1980s although they experienced repeated ups and downs during that period

Coastal fishing by small boats, set nets, or breeding techniques accounts for about one third of the industry's total production, while offshore fishing by medium-sized boats makes up for more than half the total production. Deep-sea fishing from larger vessels makes up the rest. Among the many fish species caught are sardines, skipjack tuna, crab, shrimp, salmon, pollock, squid, clams, mackerel, sea bream, saury, tuna and Japanese amberjack.

Japan maintains one of the world's largest fishing fleets and accounts for nearly 15% of the global catch , prompting some claims that Japan's fishing is leading to depletion in fish stocks such as tuna. Japan has also sparked controversy by supporting quasi-commercial whaling.

Industry

Main article: Manufacturing industries of Japan

The nation's industrial activities (including mining, manufacturing, and power, gas, and water utilities) contributed 46.6% of total domestic industrial production in 1989, up slightly from 45.8 percent in 1975. This steady performance of the industrial sector in the 1970s and 1980s was a result of the growth of high-technology industries. During this period, some of the older heavy industries, such as steel and shipbuilding, either declined or simply held stable. Together with the construction industry, those older heavy industries employed 34.9% of the work force in 1989 (relatively unchanged from 34.8 percent in 1980). The service industry sector grew the fastest in the 1980s in terms of GNP, while the greatest losses occurred in agriculture, forestry, mining, and transportation. Most industry catered to the domestic market, but exports were important for several key commodities. In general, industries relatively geared toward exports over imports in 1988 were transportation equipment (with a 24.8 percent ratio of exports over imports), motor vehicles (54 percent), electrical machinery (23.4 percent), general machinery (21.2 percent), and metal products (8.2 percent).

Industry is concentrated in several regions, in the following order of importance: the Kantō region surrounding Tokyo, especially the prefectures of Chiba, Kanagawa, Saitama and Tokyo (the Keihin industrial region); the Tōkai region , including Aichi, Gifu, Mie, and Shizuoka prefectures (the Chukyo-Tokai industrial region); Kinki (Kansai), including Osaka, Kyoto, Kobe, ( the Hanshin industrial region); the southwestern part of Honshū and northern Shikoku around the Inland Sea (the Setouchi industrial region); and the northern part of Kyūshū (Kitakyūshū). In addition, a long narrow belt of industrial centers is found between Tokyo and Fukuoka, established by particular industries, that have developed as mill towns.

The fields in which Japan enjoys relatively high technological development include semiconductor manufacturing, optical fibers, optoelectronics, optical media, facsimile and copy machines, and fermentation processes in food and biochemistry. Japan lags slightly in such fields as satellites, rockets, and large aircraft, where advanced engineering capabilities are required but they made headway through their aerospace exploration agency, JAXA with possible manned independent mission to moon, and in such fields as computer-aided design and computer-aided manufacturing (CAD/CAM), and databases, where basic software capabilities are required, and natural resources exploitation, due to the lack of them.

Services

File:Tokyo odaiba.jpg

Tokyo

The Tokyo Stock Exchange is the second largest in the world with market capitalization of more than $4 trillion.

Japan's service sector accounts for about three-fourths of its total economic output. Banking, insurance, real estate, retailing, transportation, and telecommunications are all major industries such as Mitsubishi UFJ, Mizuho, NTT, TEPCO, Nomura, Mitsubishi Estate, Tokio Marine, JR East, Seven & I, ANA counting as one of the largest companies in the world. The Koizumi government set Japan Post, one of the country's largest providers of savings and insurance services for privatization by 2014. The six major keiretsus are the Mitsubishi, Sumitomo, Fuyo, Mitsui, Dai-Ichi Kangyo and Sanwa Groups. Japan is home to 326 companies from the Forbes Global 2000 or 16.3% (as of 2006).

Labor force

Unemployment rate of Japan

In 2001, Japan's labour force consisted of some 67 million workers—40% of whom were women—and was rapidly shrinking.[2] Labour union membership is about 12 million. The unemployment rate is currently 4.1%. In 1989, the predominantly public sector union confederation, SOHYO (General Council of Trade Unions of Japan), merged with RENGO (Japanese Private Sector Trade Union Confederation) to form the Japanese Trade Union Confederation.

One major long-term concern for the Japanese labour force is a low birthrate. In the first half of 2005, the number of deaths in Japan exceeded the number of births, indicating that the decline in population, initially predicted to start in 2007, had already started. While one countermeasure for a declining birthrate would be to remove barriers to immigration, the Japanese government has been reluctant to do so.

As of July 2006, the unemployment rate in Japan is 4.1%, according to the OCDE.

see also: Labour market of Japan

Current economic issues

The Koizumi administration, which held office until 2006, enacted or attempted to pass (sometimes with failure) major privatization and foreign-investment laws intended to help stimulate Japan's dormant economy. Although the effectiveness of these laws is still ambiguous, the economy has begun to respond, but Japan's aging population is expected to place further strain on growth in the near future.

Heterodox economists tend to claim that Japan's economy is far stronger than genarally believed. Some mainstream economists acknowledge that Japan, which unlike most Western countries has maintained its industrial base, and has vast capital reserves, currently has a strong economic outlook.

The privatization of Japan Post, the Japanese postal system which also runs insurance and deposit-taking businesses, is a major issue. A political battle over privatization caused a political stalemate in August, 2005, and ultimately led to the dissolution of the Japanese House of Representatives. The Postal Savings deposits, which have until now been used to fund public works projects, many of which have had questionable economic value, stands in excess of 1.9 trillion U.S. dollars, and could be a major force in energizing the private sector.

The decline in the Japanese population as a result of a low birthrate threatens the long-term economic vitality of Japan. A higher percentage of elderly in the population will put pressures on the pension system, and will ultimately force a higher burden on the current generation of laborers.

The Japanese monetary authorities' continued desire to depress the price of yen relative to other key specific currencies to protect domestic business from imports may no longer be feasible. The most recent record intervention in 2003 amounted to over 17 trillion yen, more than one third of one trillion US dollars at the time and nearly 3% of Japan's 2003 GDP, being sold in favor of other non-yen denominated assets. However, since 2005, Japan has not directly intervened to buy currency, as yen carry trade has effectively carried out the same task.

Interestingly, international trade has expanded by 60% from 91.4 trillion yen to 142.6 trillion yen from 2001 to 2006, but the size of GDP has barely budged. However, taking in account the economic participation rate, Japan's GDP per worker has increased steadily.

The Organization for Economic Cooperation and Development downgraded its economic forecasts on March 20 2008 for the Japan for the first half of 2008. Japan does not have room to ease fiscal or monetary policy, the 30-nation group warned. For Japan, the OECD said the pace of underlying growth appears to be softening despite support from buoyant neighboring Asian economies. The organization expects first-quarter GDP to be up 0.3 percent and predicts a rise of 0.2 in the second quarter. [3]

Post-war economic history

Japanese exports in 2005

From the 1960s to the 1980s, overall real economic growth has been called a "miracle": a 10% average in the 1960s, a 5% average in the 1970s and a 4% average in the 1980s. Growth slowed markedly in the late 1990s, largely due to the Bank of Japan's failure to cut interest rates quickly enough to counter after-effects of over-investment during the late 1980s. Because the Bank of Japan failed to cut rates quickly enough, Japan entered a liquidity trap. To keep its economy afloat, Japan ran massive budget deficits to finance large public works programs. By 1998, Japan's public works projects still could not stimulate demand enough to end the economy's stagnation. In desperation, the Japanese government undertook "structural reform" policies intended to wring speculative excesses from the stock and real estate markets. Unfortunately, these policies led Japan into deflation on numerous occasions between 1999 and 2004. In his 1998 paper, Japan's Trap, Princeton economics professor Paul Krugman argued that based on a number of models, Japan had a new option. Krugman's plan called for a rise in inflation expectations to, in effect, cut long-term interest rates and promote spending. Japan used another technique, somewhat based on Krugman's, called Quantitative easing. As opposed to flooding the money supply with newly printed money, the Bank of Japan expanded the money supply internally to raise expectations of inflation. Initially, the policy failed to induce any growth, but it eventually began to effect inflationary expectations. By late 2005, the economy finally began what seems to be a sustained recovery. GDP growth for that year was 2.8%, with an annualized fourth quarter expansion of 5.5%, surpassing the growth rates of the US and European Union during the same period. Unlike previous recovery trends, domestic consumption has been the dominant factor of growth.

Japan is the top export market for almost 15 trading nations worldwide.

Other economic indicators

Industrial Production Growth Rate: 3.3% (2006 est.)

Investment (gross fixed): 100% of GDP (2006 est.)

Household income or consumption by percentage share:

• Lowest 10%: 4.8%
• Highest 10%: 21.7% (1993)

Agriculture - Products: rice, sugar beets, vegetables, fruit, pork, poultry, dairy products, eggs, fish

Exports - Commodities: machinery and equipment, motor vehicles, semiconductors, chemicals

Imports - Commodities: machinery and equipment, fuels, foodstuffs, chemicals, textiles, raw materials (2001)

Exchange rates:
Japanese Yen per US$1 - 100.320 (2008) 109.690016 (2005), 115.933 (2003), 125.388 (2002), 121.529 (2001), 105.16 (January 2000), 113.91 (1999), 130.91 (1998), 120.99 (1997), 108.78 (1996), 94.06 (1995)

Electricity:

• Electricity - consumption: 946.3 billion kWh (2005)
• Electricity - production: 996 billion kWh (2005)
• Electricity - exports: 0 kWh (2003)
• Electricity - imports: 0 kWh (2003)

Electricity - Production by source:

• Fossil Fuel: 56.68%
• Hydro: 8.99%
• Nuclear: 31.93%
• Other: 2.4% (1998)

Electricity - Standards:

• 100 volts at 50 Hz from the Oi River (in Shizuoka) Northward;
• 100 volts at 60 Hz Southward

Oil:

• production: 125,000 bbl/day (2006)
• consumption: 5.578 million bbl/day (2005)
• exports: 93,360 barrel/day (2001)
• imports: 5.449 million barrel/day (2001)
• net imports: 5.3 million barrel/day (2004 est.)
• proved reserves: 59 million bbl (1 January 2006)

See also

• Japanese post-war economic miracle
• Quantitative easing