Japanese Economy A 2012 Fall Seinan Gakuin University

1. Japanese Economy A2012 FallSeinanGakuinUniversity Noriaki EZOE Professor Ph.D. Economics Department Seinan Gakuin UniversityJapan Mail address: ezoe@seinan-gu.ac.jp Homepage address: https://w3.seinan-gu.ac.jp/~ezoe/

2. Chapter 1Introduction What you will learn in this Chapter 1Japanese economy today in the international comparison. 2 Some issues that the Japanese economy are facing now. 3 Incomes and welfare of the Japanese today 4 History in Japanese development :Overview

3. 1.1 Basic Information Figure1.1 map of Japan Totallandarea378,000 sq.km Population127.9 million Religion:Shintoism , Buddhism, Christianity (1%) Ethnic diversityJapanese (99%), others (1%) Life expectancy86 years (women), 79 years (men) Economic Data(2010) GDP 479,179(billion yen ) Growth of real GDP 3.9 Trade Commodity export67 400 Commodity import 60 765 Services 　 　 －1 622 Current Balance 17 016 Exports in percent of GDP 15.2 Imports in percent of GDP 14.1 currency August 2012 1US$ = 78Yen

4. Map1

5. 1.2 Japan : international comparison • We look at the various information that are published by the Japanese government. Japan Institute for Social and Economic Affairs, Japan 2011: An International comparison. URL: http://www.kkc.or.jp/

6. 2 Recent Issues in Japanese Economy 2.1Economic Growth Three periods of Japanese postwar economy1 rapid growth period (1950-1973, 9.3percent),2 moderate growth period (1976-1991, 4.3percent), 3 stagnation period (1992-2003, 1percent) (annual average growth rate in parentheses).Figure 1.2 Growth rate of the postwar economySource: Iyota(2010),p.7

7. The Bubble economy and the lost decade The boom of the late 1980s and early 1990s was driven by speculative fever in real estate and stocks, known as the "bubble economy." The bubble economy collapsed at 1990-91. The Nikkei Stock Average and the price of land fell. After the bubble, the Japanese economy entered a long period of stagnation. Figure1-3 Land prices in Japan

8. Figure1.4 An recovery from GLOBAL CRISIS 2008 • Source: Ministry of Economy, Trade and Industry, Cabinet Office, Bank of Japan and OECD.

9. Figure 1.5 Improvement in the labor market

10. 2.2 Recent issues in the Japanese Economy Followings are a few examples:(OECD Economics Survey 2011) • The Great Earthquake hits Japan on 3.11, 2011 • Fiscal consolidation (huge government debt) • Deflation (deflation spiral=vicious cycle) • Yen appreciation (foreign exchange rate) • Population ageing (labor market) • And more ---

11. Impact of Earthquake • Damage estimate: 25trilion yen • Three suffered prefectures which account for about 4% of nationwide economic output and 4.5% of Japan’s population. • Past disaster: the 1995 Hanshin-Awaji (Kobe) earthquake 9.6 trillion yen (2% of GDP) • A short-term loss followed by a later rebound (Figure 1.6) • The positive impulse from reconstruction spending. • Hyogo (the prefecture that includes Kobe) fell sharply in the first quarter of 1995, but then rebounded strongly and by the third quarter was 7% above its pre-earthquake level (Panel A) • However, the nuclear power plants DISASTER = electricity supply SHORTAGE

12. Figure 1.6 The impact of the 1995 Hanshin-Awaji (Kobe) • earthquake

13. Figure 1.7 The deteriorating fiscal situation in Japan For general government, as a percentage of GDP

14. Figure1.8 Public debt in selected countriesthe highest in both gross and net debt

15. Figure1.9 Tax revenue in OECD countries Per cent of GDP in 2005. source:OECD(2008)The share of taxes in GDP in Japan is one of the lowest in the OECD area significant scope to raise revenue

16. Figure1.10 long-run trends in the yen exchange rateAverage 1990-2010 = 100

17. Figure1.11 Recent exchange rate trends 2005 = 100

18. Costs of deflation A deflationary spiral makes it more difficult to get out of deflation. 1 the real interest rate goes up ⇒dampen consumption and investment. 2 asset price deflation ⇒ cause financial fragility 3 monetary policy do not work ⇒liquidity trap 4 deflationary spiral ⇒deflationary expectation entrenched. The Japanese case may be the first example of liquidity trap since the experiences in the Great Depression in the 1930s (T.Ito 2005). Recommended Policy • Bank of Japan to announce its inflation target and commit to its attainment. (T.Ito,PaulKrugman )

19. Figure1.12 Consumer price developments deflationary pressureYear-on-year percentage change

20. Figure1.13 The share of non-regular workers is rising

21. Figure1.14 Japan's Population Pyramid (as of 2000)

22. Figure1.15 Population ageing in OECD countriessource：OECD(2008)Population aged 65 and over, relative to the population aged 20-64(Workingpopulation)

23. 2.3 Japan’s New growth strategyTo create demand and jobs Demand-side policies 1 Green growth Green innovation 2 Life innovation medical, drugs 3 Asian economic integration Promote economic partnerships 4 Tourism and local revitalization Regional development Supply-side policies 5 Science ,technology and IT Increase R&D investment 6 Employment and human resources Establish new system 7 Financial sector Create an integrated exchange

24. 3 Incomes and welfare of the Japanese today 3.1 GDP and National Income - Spending is either for consumption, investment, or accumulation of foreign wealth. - Investment contributes to sustainable consumption. - Consumption levels and national income. 3.2 Real income indices and revealed preferences - Real income indices and revealed preferences -Substitution 3.3 Nonmarket goods -Shadow prices of nonmarket goods -Comparing the value of nonmarket goods in Japan and the United States 3.4 The distribution of wealth 3.5 The underground economy

25. 4 The historical perspectivesHistory in Japanese development Overview • Following is a Ohno’s lecture notes in GRIPS (the National Graduate Institute for Policy Studies in Tokyo). • “ Economic Development of Japan” 2011 July. • His homepage address is: • http://www.grips.ac.jp/teacher/oono/hp/lec_J.htm • Kenichi Ohno [2006], The Economic Development of Japan. • http://www.grips.ac.jp/forum/pdf06/EDJ.pdf

26. The history of Japanese economic development Ohno has paid a particular attention to the following questions: 1 Why did Japan succeed in industrialization as the first non-Western latecomer in the late 19th century? What were the initial conditions that permitted it? 2 Interaction of external influences and domestic capability in the industrialization process. 3 Interaction of economic and political/social factors. 4 How did the private sector respond to new challenges and government policies? 5 How did the government support industrialization? What mistakes did it make? Japanese Economy

27. Ohno II. Samurai’s Rule III. Modern-ization I. Emperor’s Rule IV. Postwar 1603 X WAR 1867 Rapid recovery and growth NARA Centralization MEIJI Westernization,industrialization,militarilization EDO Tokugawa Shogunate KAMAKURAMUROMACHISENGOKU Jinshin War × 671 HEIAN Nobles,Decentralization Taika Reform × 645 Internal wars, dynamic & fluid society Peace, isolation, conservative class society Clan fights Hunting & gathering xxxx xxxx xxx WEST!!! Chinese culture &political system WEST: guns &Christianity US occupation1945-52 Rice Buddhism

28. Table 1-1 Outline of Japanese History

30. References • Dadid Flath [2005],TheJapaneseEconomy, OxfordUniversity Press. • Government of Japan [2010],The new Strategy: Blueprint for Revitalizing Japan. • Mitsuhiko Iyoda [2010],Postwar JapaneseEconomy, Springer Press. • Kenichi Ohno[2006], The Economic Development of Japan, • GRIPS Development Forum. • Japan Institute for Social and Economic Affairs, Japan 2011: An International comparison. • OECD[2011],Economic Survey of Japan,2011. • OECD[2009],Economic Survey of Japan,2009. • OECD[2011],Economic OUTLOOK ,2011.