(Reuters) – TOKYO, Nov 15 (Reuters) – In the third quarter, Japan’s economy shrank far quicker than projected as global supply disruptions harmed exports and company expenditure, while fresh COVID-19 cases soured consumer sentiment, undercutting efforts to maintain a virtuous economic cycle.
Why has Japan’s economy shrunk?
Japan’s economy as a whole is still recovering from the effects of the 1991 financial crisis and the subsequent lost decades. It took 12 years for Japan’s GDP to return to pre-crisis levels. Japan has also fallen behind in terms of output per capita, which is a further symptom of economic malaise. Japan’s actual output per capita was 14 percent higher than Australia’s in 1991, but by 2011, it had fallen to 14 percent below Australia’s levels. Japan’s economy has been outpaced not only in gross output but also in labor efficiency over the last 20 years, despite the fact that it was formerly a global leader in both. Japan’s worker productivity was the lowest among the G7 developed economies and among the OECD countries in 2018.
Japan has undertaken economic stimulation in response to chronic deflation and sluggish growth, resulting in a fiscal deficit since 1991. These economic stimulus have had unclear impacts on the Japanese economy at best, and have led to the Japanese government’s massive debt burden. As of 2013, Japan had the highest level of debt of any country on the planet, with a debt-to-GDP ratio of 240 percent. While Japan is an outlier in that the vast majority of its public debt is held in the domestic market and by the Bank of Japan, the sheer amount of the debt necessitates hefty service payments and is a concerning sign of the country’s financial health.
Japan was still facing the effects of Lost Decades more than 25 years after the first market crisis. Several Japanese policymakers, on the other hand, have undertaken changes to address the country’s economic doldrums. After Shinzo Abe was elected Prime Minister of Japan in December 2012, he launched the Abenomics reform program, which aimed to address many of the issues presented by Japan’s Lost Decades. His “three arrows” of reform are aimed at addressing Japan’s perennially low inflation, declining worker productivity in comparison to other developed countries, and demographic concerns brought on by an aging population. Investors reacted positively to the reform announcement at first, with the Nikkei 225 rallying above 20,000 in May 2015, up from a low of roughly 9,000 in 2008. Although initial accomplishments were limited by a sales tax hike adopted to balance the government budget, the Bank of Japan has established a 2% objective for consumer-price inflation. Wages and consumer mood, on the other hand, were little affected. According to a Kyodo News poll conducted in January 2014, 73 percent of Japanese respondents had not directly noticed the effects of Abenomics, only 28% expected a wage boost, and over 70% were considering cutting back on spending as a result of the consumption tax increase.
The impact of the nation’s coronavirus epidemic, according to Jun Saito of the Japan Center for Economic Research in 2020, dealt the “final blow” to Japan’s long-struggling economy, which had resumed moderate development in 2018.
What has caused Japan’s economy to stagnate?
For nearly two decades, Japan’s economy has been stagnant. Takeo Hoshi will present the conclusions of a report he co-authored with Anil Kashyap of the University of Chicago Booth School of Business, the National Bureau of Economic Research (NBER), and the Federal Reserve Bank of Chicago at this event. Hoshi and Kashyap used the neoclassical growth model in their paper to try to understand why growth has slowed and to offer policy options that could help restore growth. Their focus was purposefully on longer-term difficulties, rather than the acute challenges connected with the global recession’s aftermath.
They discovered that towards the end of the 1970s, Japan could no longer rely on an undervalued currency to increase its exports due to financial globalization and the collapse of the fixed exchange rate regime. To adapt with globalization and minimize its dependency on external demand, it had to reorganize its production system and other economic institutions.
Japan’s population was changing, and it was growing more old. The labor force grew more slowly as the population grew older. Domestic savings that sustained economic expansion during the period of high economic growth were finally diminished as a result of declining fertility mixed with aging.
Finally, both monetary and fiscal policies failed miserably. The Bank of Japan has frequently failed to meet its inflation target. During the 1990s and 2000s, the government sought enormous fiscal stimulus, to the point where Japan’s debt position deteriorated from best to worst among advanced nations.
Hoshi is a Pacific Economic Cooperation Professor of international economic relations at the University of California, San Diego’s Graduate School of International Relations and Pacific Studies. He also serves on the board of directors of Union Bank and is a research associate at the Tokyo Center for Economic Research. His primary research focus is on financial aspects of the Japanese economy, particularly corporate finance and governance.
He won the Reischauer International Education Award in 2011, the Enjoji Jiro Memorial Prize in 2006, and the JEA-Nakahara Prize in 2005. Corporate Financing and Governance in Japan: The Road to the Future (MIT Press, 2001), which won the Nikkei Award for the Best Economics Books in 2002, is one of his many writings. /* Style Definitions */ table.MsoNormalTable Normal0falsefalsefalseEN-USJAX-NONE
What is the state of Japan’s economy?
According to government figures, Japan’s economy grew by 1.7 percent in real terms in 2021. The outcome came after a 4.5 percent contraction in 2020 and a 0.2 percent drop the year before. Business news on a daily basis Each weekday, you’ll receive an email with the most up-to-date coverage of business, markets, and the economy. It will be delivered to your inbox.
Is Japan’s economy slowing down?
According to the median prediction of over 30 economists, the world’s third-largest economy shrunk by 0.8 percent on an annualized basis in the third quarter, reversing a 0.8 percent expansion expected last month.
The economy last contracted in the first quarter, when it dropped by 4.2 percent on an annualized basis.
“Consumption is expected to have decreased, and automobile output, which has a significant influence,” said Naoki Murakami, senior economist at Asset Management One.
The government is expected to disclose preliminary third-quarter GDP numbers on Nov. 15.
The economy is expected to bounce by 5.1 percent this quarter as consumer activity returns following the dramatic decline in COVID-19 cases and deaths, thanks to rising vaccination rates that currently cover more than 70% of the population.
Analysts predict fourth-quarter growth to be aided by a reduction in parts supply interruptions across Asia – a critical fix for the auto industry – however drag from the worldwide semiconductor chip shortage is expected to be a worry.
“In October and November, the number of people on the street indicates that consumption will recover. Travel and hotel bookings are also on the rise “Itochu Economic Research Institute’s chief economist, Atsushi Takeda, stated.
“Growth will most certainly turn positive in October-December, with the impact of Prime Minister Fumio Kishida’s government’s economic stimulus package to be visible later next year.”
According to the Nov. 1-10 poll, the fourth-quarter forecast was stronger than last month’s forecast of 4.5 percent growth.
Despite global increases in raw material and energy prices, nearly 90% of analysts questioned said the yen’s recent depreciation against its major counterparts had been mostly favourable to the economy.
Last month, the yen fell to nearly four-year lows against the US dollar and more than five-year lows against the British pound.
Overall, the yen’s decline is not anticipated to affect Japan’s economy right away, though it may undermine the country’s relative purchasing power globally in the long run, according to Hiroshi Ugai, JPMorgan Securities’ top Japan economist.
For the time being, the yen’s devaluation boosts the economy, but when combined with rising energy bills, it could hurt smaller businesses and households, according to Ugai, albeit the cost is likely bearable.
When asked what yen level would hurt the economy the most, eight economists indicated the damage would outweigh the benefits if the yen fell below 130 to the dollar. Five preferred a yen-to-dollar range of 125-130, while eight chose 120-125.
Three economists chose “115-120 yen per dollar,” while one analyst chose “110-115 yen per dollar” and another chose “stronger than 110 yen per dollar.”
What is causing Japan’s population decline?
Economic uncertainty, migration limitations, and couples opting for smaller families are all having a negative impact on the world’s population. According to projections from The Asahi Shimbun, Japan’s birthrate is declining at a faster rate than previously expected.
What caused Japan to stop producing Hoshi?
To begin with, Japan was catching up to more advanced economies like the United States. As a result, Japan’s growth could no longer be based solely on copying or importing innovative technologies from industrialized economies. The procedures and economic structures that were successful during the catch-up period were not as effective in a more mature economy.
Where does Japan’s economy stand globally?
Japan’s economy is a well-developed free-market economy. It has the world’s third-largest nominal GDP and fourth-largest purchasing power parity (PPP). It has the second-largest developed economy in the world. Japan is a member of the G7 as well as the G20. The country’s per capita GDP (PPP) was $40,193 according to the World Bank (2020). Japan’s GDP, measured in dollars, swings dramatically due to a variable currency exchange rate. Using the Atlas technique to account for these changes, Japan’s GDP per capita is projected to be roughly $39,048. The Bank of Japan’s Quarterly Tankan survey of business mood is used to forecast the Japanese economy. The Nikkei 225 is a monthly report from the Japan Exchange Group, which is the world’s fifth-largest stock exchange by market capitalization. Japan was the fourth-largest importer and fourth-largest exporter in the world in 2018. It has $1.4 trillion in foreign-exchange reserves, the second-largest in the world. On the Ease of Doing Business Index, it is ranked 29th, whereas on the Global Competitiveness Report, it is ranked 5th. In the Economic Complexity Index, it is ranked first in the world. Japan is also the fourth-largest consumer market in the world.
Japan is the world’s second-largest producer of automobiles. It is frequently regarded as one of the most innovative countries in the world, leading numerous worldwide patent filing indices. Faced with rising competition from China and South Korea, Japanese manufacturers are now concentrating on high-tech and precision items such as integrated circuits, hybrid automobiles, and robotics. Aside from the Kant area, the Kansai region is one of Japan’s most important industrial clusters and manufacturing regions. Japan is the largest creditor nation on the planet. Japan maintains a significant net international investment surplus and runs an annual trade surplus. Japan has the world’s third-largest financial assets, valued at $12 trillion in 2020, or 8.6 percent of global GDP. Japan is home to 51 Fortune Global 500 firms in 2017, down from 62 in 2013. In terms of total wealth, the country ranks third in the globe.
Japan used to have the second-largest assets and wealth in both categories, after only the United States. China surpassed it in terms of assets and wealth in 2015. Japan also possessed the world’s second-largest economy, after the United States, in terms of nominal GDP. It was surpassed by China in 2010.
The bursting of Japan’s asset price bubble in 1991 ushered in a period of economic stagnation known as the “lost decade,” which was often referred to as the “lost 30 years.”
What is Japan’s most serious issue?
Everyone is aware that Japan is in a state of emergency. The most pressing issues it faces – a deteriorating economy, an elderly people, a declining birthrate, radiation, and an unpopular and weak government pose an enormous challenge and maybe an existential threat. A tangle of minor worries and anxieties, of which Shukan Josei (March 13) enumerates 10, is less fateful but closer to home.
Some of these, such as one-third of single women living in poverty and an increase in the number of children in need of protection from child abuse, are far from insignificant. Others, such as the rise in bicycle accidents and habitat devastation, appear to be worthy of being put on the back burner at first glance, but on second thought…
Take, for example, fauna that is destructive. Deer, wild boar, monkeys, and other mindless critters do an estimated 20 billion yen in damage to crops, national parks, and people in the form of personal injury each year monkeys in particular. Shukan Josei claims that deer gnawing tree bark has transformed half of Japan’s national parkland into desolation, while pigs ravage rice paddies. If only the Japanese could develop a taste for game the way the Europeans have! The marauders would then be hunted in greater numbers by hunters, and a sustainable equilibrium would be restored. Despite the fact that the Japanese have become meat eaters, they still favor domestic livestock.
The problem with bicycles, which are convenient, environmentally beneficial, and provide wonderful exercise, is that anyone may ride one; no license is required, and there is no mandated teaching on road regulations, which many riders appear to be unaware of. Furthermore, because few people consider bicycles to be dangerous, they are not treated with the respect they deserve. Pedestrians are involved in many accidents Shukan Josei does not say how many and they can be fatal. Cyclists bear the brunt of the criticism, which isn’t really fair. According to the magazine, Japan is far behind other countries in developing exclusive bicycle lanes, particularly in Holland and Scandinavia.
The escalating child abuse numbers do have a silver lining. At least some of the increase can be ascribed to neighbors reporting issues, implying increased awareness and possibly increased neighborly care. Of course, this is of little consolation to the children who have been harmed. Much of the blame is placed on stress and solitude. Child-rearing used to be a community obligation, but communities are nearly dead; or it used to be the responsibility of the entire extended family, but extended families are nearly extinct as well. Furthermore, according to Shukan Josei, public children’s facilities are understaffed and shabby, whereas older people’ homes receive more attention.
Why is it that one-third of single women are poor? For one thing, the majority of working women (12 million) are part-time jobs with little pay and few benefits. Inheritance laws, for example, are slanted in favor of men. The impact on children is severe because many single women are also single mothers. “Japan provides very weak protection to its young population in comparison to other developed countries,” a lawyer tells the magazine.
Poverty among women is also a factor in the lowering birth rate. In Japan, 340,000 abortions are performed each year, the most of which are assumed on mothers who cannot afford to have children.
Is Japan’s economy superior to America’s?
The two greatest national economies in the world are the United States and Japan. The United States has the highest deficit and indebted country in the world. Japan is the world’s biggest creditor and surplus country. The dollar-yen exchange rate has fluctuated wildly, rising from 360:1 in 1971 to 80:1 in early 1995 before falling to around 130:1 now. Over the last three decades, trade frictions have jeopardized the global trading system’s stability, leading to drastic measures like America’s import tax in 1971 and Japan’s acceptance of “voluntary export limitations” in a wide range of industries in the 1980s. As a result, the direction of economic relations between the United States and Japan is crucial to the global economy as well as to overall relations between the two countries.
Over the last decade, the economic situations of Japan and the United States have substantially shifted. Most Japanese and many Americans believed, in the late 1980s, that Japan was on its approach to becoming the world’s dominating economy, if it hadn’t already done so. The majority of Americans and many Japanese believed that the United States’ competitive position had deteriorated significantly. Japanese investors were pouring money into the US in large amounts (at what often turned out to be vastly inflated prices). As they tried to regain their own strength, American businesses were adopting fundamental Japanese management principles.
All of this has altered in the last ten years. The United States has now experienced economic growth for the ninth year in a row. Since 1970, America has added approximately fifty million new jobs, including twelve million since 1993. Unemployment has dropped to its lowest level in nearly three decades. Since the first oil shock in 1973, prices have been more stable than they have ever been. Indeed, the United States has risen continuously since 1982, with the exception of a brief recession in 1990-91. The “American model” appears to be gaining traction and is being widely imitated around the world.
Since the early 1990s, Japan, on the other hand, has been the “sick man” of both the industrialized world and East Asia. This performance is a curious contradiction. Japan had been the world’s fastest expanding economy before the recent Asian crisis erupted. Even before the newest moves, it has executed fiscal stimulus programs totaling more than $600 billion in previous years. For a long time, interest rates have remained near zero. The trade surplus is the greatest in the world, and it has been steadily increasing in recent years.
Japan, on the other hand, has had essentially no growth in the last six years. Something appears to be fundamentally incorrect. Many areas definitely require deregulation and liberalization, especially as other countries rapidly open their economies. The financial system’s vulnerability is the most significant; recovery is difficult without serious reform in that sector.