Japan has one of the world’s largest and most sophisticated economies. It boasts a highly educated and hardworking workforce, as well as a huge and affluent population, making it one of the world’s largest consumer marketplaces. From 1968 to 2010, Japan’s economy was the world’s second largest (after the United States), until China overtook it. Its GDP was expected to be USD 4.7 trillion in 2016, and its population of 126.9 million has a high quality of life, with a per capita GDP of slightly under USD 40,000 in 2015.
Japan was one of the first Asian countries to ascend the value chain from inexpensive textiles to advanced manufacturing and services, which now account for the bulk of Japan’s GDP and employment, thanks to its extraordinary economic recovery from the ashes of World War II. Agriculture and other primary industries account for under 1% of GDP.
Japan had one of the world’s strongest economic growth rates from the 1960s to the 1980s. This expansion was fueled by:
- Access to cutting-edge technologies and major research and development funding
- A vast domestic market of discriminating consumers has given Japanese companies a competitive advantage in terms of scale.
Manufacturing has been the most notable and well-known aspect of Japan’s economic development. Japan is now a global leader in the production of electrical and electronic goods, automobiles, ships, machine tools, optical and precision equipment, machinery, and chemicals. However, in recent years, Japan has given some manufacturing economic advantage to China, the Republic of Korea, and other manufacturing economies. To some extent, Japanese companies have offset this tendency by shifting manufacturing production to low-cost countries. Japan’s services industry, which includes financial services, now accounts for over 75% of the country’s GDP. The Tokyo Stock Exchange is one of the most important financial centers in the world.
With exports accounting for roughly 16% of GDP, international trade plays a key role in the Japanese economy. Vehicles, machinery, and manufactured items are among the most important exports. The United States (20.2%), China (17.5%), and the Republic of Korea (17.5%) were Japan’s top export destinations in 2015-16. (7 per cent). Export growth is sluggish, despite a cheaper yen as a result of stimulus measures.
Japan’s natural resources are limited, and its agriculture sector is strictly regulated. Mineral fuels, machinery, and food are among Japan’s most important imports. China (25.6%), the United States (10.9%), and Australia (10.9%) were the top three suppliers of these items in 2015. (5.6 per cent). Recent trade and foreign investment developments in Japan have shown a significantly stronger involvement with China, which in 2008 surpassed the United States as Japan’s largest trading partner.
Recent economic changes and trade liberalization, aiming at making the economy more open and flexible, will be critical in assisting Japan in dealing with its problems. Prime Minister Abe has pursued a reformist program, called ‘Abenomics,’ since his election victory in December 2012, adopting fiscal and monetary expansion as well as parts of structural reform that could liberalize the Japanese economy.
Japan’s population is rapidly aging, reducing the size of the workforce and tax revenues while increasing demands on health and social spending. Reforming the labor market to increase participation is one of the strategies being attempted to combat this trend. Prime Minister Shinzo Abe’s ‘Three Arrows’ economic revitalisation strategy of monetary easing, ‘flexible’ fiscal policy, and structural reform propelled Japan’s growth to new heights in 2013.
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How did Japan’s economy expand so quickly?
Japan’s postwar economic recovery was aided by the Ministry of International Trade and Industry (MITI). According to some academics, MITI had a greater economic influence than any other government legislation or agency. “The specific speed, structure, and implications of Japanese economic expansion are not understood without reference to the achievements of MITI,” writes Chalmers Johnson (Johnson, vii). The “Policy Concerning Industrial Rationalization” (1950), which coordinated efforts by companies to combat the impacts of SCAP’s deflationary laws, marked the beginning of MITI’s role. MITI established collaboration between the Japanese government and private enterprise in this way. If MITI wanted to “double steel output, the neo-zaibatsu already has the capital, the building assets, the producers of production machines, and most of the other necessary variables already available in-house,” the policy was broad enough. Various industries, including the burgeoning keiretsu, were guided by the Ministry toward a specific purpose, usually the junction of state production goals and private economic interests.
MITI also improved industrial security by decoupling technology imports from other goods imports. The Foreign Capital Law of MITI gave the ministry the authority to negotiate the price and terms of technology imports. This technological control enabled it to promote industries that it saw as promising. Imported technology’s low cost enabled for fast industrial expansion. New equipment, management, and standardization dramatically increased productivity.
With the elimination of the Economic Stabilization Board and the Foreign Exchange Control Board in August 1952, MITI gained the jurisdiction to regulate all imports. Despite the fact that MITI already controlled the Economic Stabilization Board, the Yoshida Governments converted it into the Economic Deliberation Agency, a simple “think tank,” effectively giving MITI complete control over all Japanese imports. MITI was also given direct control over the foreign exchange budget.
The Japan Development Bank, established by MITI, provided low-cost finance to the private sector for long-term growth. Access to the Fiscal Investment and Loan Plan, a vast pooling of private and national savings, was made possible through the Japan Development Bank. FILP had four times the savings of the world’s largest commercial bank at the time. FILP was able to keep an unusually high number of Japanese construction enterprises thanks to its financial clout (more than twice the number of construction firms of any other nation with a similar GDP).
Why is Japan the world’s third largest economy?
Japan has the world’s third-largest economy, having experienced tremendous resurgence following the devastation of WWII in the second half of the twentieth century. It plays a significant role in the world society. It is a major assistance contributor as well as a global source of finance and credit.
Why is Japan such a prosperous and sophisticated country?
Japan saw two phases of economic expansion after 1854, when the Tokugawa shogunate first opened the country to Western commerce and influence (Bakumatsu). When the Tokugawa shogunate was deposed in 1868 and the Meiji government was established, Japan began to fully Westernize. Pre-war Japan is the first phrase, and post-war Japan is the second.
The majority of labor issues occurred in the mining and textile industries in the first half of the Meiji period, and took the form of small-scale strikes and spontaneous riots. Rapid industrialization, the emergence of a capitalist economy, and the conversion of many feudal employees to wage labor marked the second half of the period. Strikes became more common, and in 1897, a metalworkers’ union was formed, marking the start of the modern Japanese trade-union movement.
Textiles, such as cotton and especially silk, were the earliest products of the industrial revolution, and they were made in home workshops in rural areas. Japanese textiles dominated domestic markets by the 1890s, and they competed successfully with British products in China and India as well. To transport these items across Asia and even to Europe, Japanese merchants competed with European traders. Textile mills, like those in the West, mostly employed women, half of whom were under the age of twenty. Their dads had sent them there, and they had paid up their pay to their fathers. Japan mainly bypassed water power in favor of steam-powered mills, which were more productive and fueled demand for coal.
The year 1907 saw the most disturbances in a decade, with large-scale uprisings at Japan’s two most important copper mines, Ashio and Besshi, only being put down by the employment of troops. None of these early unions were large (the metalworkers union had 3,000 members, accounting for only 5% of the industry’s workforce), nor did they last more than three or four years, owing to strong employer opposition and the government’s anti-union policies, particularly the Public Order and Police Provisions Law (1900).
The abolition of the feudal system was one of the most significant economic effects of the Meiji period. The Japanese people were able to advance through the levels of society more freely than before thanks to a rather flexible social structure. They were able to accomplish this by creating and marketing their own products. The fact that the Japanese people could now become better educated was even more significant. Japan’s manufacturing sector increased tremendously as its populace became more educated. By incorporating the Western ideal of capitalism into technological advancement and applying it to their military, Japan had become a militaristic and economic superpower by the turn of the century.
Leaders established a new Western-based education system for all young people during the Meiji period, sent thousands of students to the United States and Europe, and hired over 3,000 Westerners to teach contemporary science, mathematics, technology, and foreign languages in Japan (O-yatoi gaikokujin). To prepare the country for further development, the government built railroads, renovated roads, and launched a land reform program.
The government decided that, while it should assist private businesses with resource allocation and planning, the private sector was best able to encourage economic growth. The government’s most important function was to help create the economic circumstances that allowed businesses to thrive. In other words, the government was to act as a guide, while business was to act as a producer. The government built factories and shipyards in the early Meiji period, which were then sold to entrepreneurs at a fraction of their original cost. Many of these companies expanded into larger conglomerates quickly. The government took the lead in promoting private enterprise, introducing a slew of pro-business policies.
Why was Japan so prosperous throughout the 1980s?
With an average annual growth rate of 4% in the 1980s, overall real economic growth was dubbed a “miracle.” Japan had the world’s second highest gross national product (GNP) in the 1970s, just behind the United States, and was first among major industrial nations in per capita GNP in 1990, with US$23,801, up substantially from US$9,068 in 1980. After a brief economic downturn in the mid-1980s, Japan’s economy entered a phase of expansion in 1986, which lasted until 1992, when it entered a recession. Between 1987 and 1989, the economy grew at a rate of 5%, reviving industries like steel and construction that had been relatively quiescent in the mid-1980s and bringing record earnings and employment.
Domestic demand pushed the Japanese economy in the late 1980s, unlike the economic booms of the 1960s and 1970s, when expanding exports played a vital role in economic progress. This change required fundamental economic restructuring, as the economy shifted from emphasis on exports to reliance on local demand. The 1986 boom was fueled by corporate decisions to expand private plant and equipment spending, as well as consumer decisions to embark on a shopping spree. Imports expanded at a quicker rate than exports in Japan. Japanese postwar technology innovation was focused on economic development rather than military advancement. Increased domestic demand for high-technology products and higher living, housing, and environmental standards; better health, medical, and welfare opportunities; better leisure-time facilities; and improved ways to accommodate a rapidly aging society fueled the growth of high-technology industries in the 1980s.
Why has Japan grown to be so powerful?
In 1871, Japan dispatched the Iwakura Mission. The mission traveled the globe in order to renegotiate the unequal treaties that Japan had been forced to sign with the United States and European countries during the Tokugawa shogunate, as well as to gather information on western social and economic systems in order to effect Japan’s modernization. Renegotiation of the unequal treaties was uniformly unsuccessful, but members’ thorough observation of the American and European institutions motivated them to bring modernization measures to Japan when they returned. In 1875, Japan and Russia signed a territorial delimitation pact in which Japan received all of the Kuril islands in exchange for Sakhalin Island.
The Japanese government dispatched observers to Western countries to observe and learn from their techniques, as well as paying “foreign consultants” in a number of professions to come to Japan and teach the general public. For example, the legal system and constitution were fashioned after Prussia, which Sabur Ienaga describes as “a combination of Confucianism and German conservatism” in an attempt to regulate public ideas. The government also made it illegal to practice practices associated with Japan’s feudal history, such as openly exhibiting and wearing katana and the top knot, both of which were associated with the samurai class, which was abolished along with the caste system. The Meiji government would subsequently clash with the samurai as a result of this.
Several writers were influential in gaining Japanese support for westernization, despite the continual threat of assassination from their political opponents. Fukuzawa Yukichi was one of these writers, with works including “Conditions in the West,” “Leaving Asia,” and “An Outline of a Theory of Civilization” detailing Western society and his own beliefs. Military and economic might were stressed throughout the Meiji Restoration period. Military might became a tool for achieving national growth and stability. As a result of industrialization and economic development, Imperial Japan became the only non-Western world power and a dominant force in East Asia in around 25 years.
Was Japan ever impoverished?
On the surface, Japan appears to have avoided the difficulties and setbacks that frequently befall big economies. Japan, on the other hand, spends a lot of money to mask its mounting economic problems. Here’s some information on Japan’s poverty.
Facts About Poverty in Japan
- Homelessness affects less than 1% of Japan’s population. Japan has a population of 126.5 million people as of 2018. Japan’s current homelessness figure is below 5,000, according to the latest Ministry of Health, Labor, and Welfare figures. This is a continuous decrease from approximately 26,000 homeless people in 2003. While this may appear to be a spectacular triumph of social change, the Japanese government spends millions of dollars each year to keep homelessness at a minimum. The idea is to provide the impression that Japan’s economy is strong. In actuality, Japan’s poverty rate is rising. Each year, Japan enacts hundreds of government reforms that are extraordinarily costly and on the verge of being unsustainable.
- In terms of wealth distribution, Japan is “the most equitable large society.” According to the Statista Research Department, 92 percent of the Japanese population possesses assets or wealth ranging from $10,000 to $1 million. These data appear to show an exceptionally thriving economy on paper, but they conceal the fact that Japan’s poverty rate is considerably over 16 percent. The claim that 92 percent of Japanese citizens are “rich” could be misleading, as it is based on a straw-man figure.
- In Japan, a growing number of people are living in poverty. Poverty and bad economic conditions have risen dramatically and unexpectedly in Japan, particularly after 2012. According to The Guardian, 3.5 million children in Japan live in impoverished households. Poverty has become a systemic problem in Japan since 1991, reaching 16.3 percent this year. As the working population declines, this number may continue to climb rapidly.
- Japan is engaged in a “cat and mouse” economic game. Poverty in Japan has become more of a problem since the country’s population of retired persons has risen dramatically. As a result, Japan has had to raise the retirement age to 70, shift its priority to labor force participation (which leads to unequal distribution of employment opportunities), and execute costly government reforms in order to deal with a shrinking workforce and a rising retired population.
- Japan devotes a significant amount of resources to combating unemployment. After a significant decline in workforce participants in 1991, Japan’s poverty entered an unprecedented age of severity. Prior to 1991, unemployment had been hovering around 2% for decades, before skyrocketing to nearly 6% by 2002. In fact, this one-time occurrence came dangerously close to dethroning Japan as the world’s economic superpower. Japan’s unemployment rate has now dropped to just under 2%, despite the fact that the country has had to spend a significant amount of money to achieve this. The country is still not back to normal.
- One-third of Japan’s population is retired, and the government is at a loss. Around a third of Japan’s population is now 65 or older. Japan is home to the world’s oldest population. This is one of the reasons why Japan has become one of the world’s slowest developing economies. To care for a large section of Japan’s population, aggressive government investment is required, and the situation is only getting worse as the population ages.
- The ratio of employed citizens to recipients of social benefits in Japan is unbalanced. Japan’s social benefits system, like that of the United States, is becoming increasingly problematic. Almost everyone in Japan’s “Baby Boom” generation is covered by social security. In the meantime, the sector of the economy that pays for social security benefits is unable to meet financial obligations. Similarly, the number of new social assistance beneficiaries in Japan is falling behind the birth rate. In fact, by 2025, Japan expects an unsustainable’recipient to payer’ ratio in social benefit programs.
- Single mothers in Japan are disproportionately burdened financially. In over 80% of divorce cases in Japanese society, the mother is awarded full custody of the children. There is currently no enforcement of child support systems in Japan, which means that single moms may be responsible for 100% of the financial burden of raising children. As a result, lots of single mothers find themselves in financial difficulty and must seek government aid. Thousands of women live in poverty because the topic of single parenting as a result of divorce is taboo. As a result, many of them are living in abject poverty.
- Houses that have been abandoned have become a typical occurrence. “Akiya” is a phrase used to describe a house that has been abandoned or vacated and is still standing unoccupied. According to World Habitat, Japan now has roughly 9 million abandoned dwellings, with up to 21 million abandoned homes anticipated by 2033. This has a negative impact on poverty in Japan since the government must repurpose and maintain unoccupied houses, which is a huge financial burden.
- Poverty in Japan impacts women differently than it does males. In recent years, Japan has made significant strides toward gender equality in the workplace. Women now make up about 71 percent of the workforce, compared to 58 percent a decade ago. In Japan, women have access to extensive and generous parental leave. Despite these advancements, the female workforce faces an uncertain future, with projected poverty rates for older women reaching 25% by 2040. With rapidly dropping birth rates and rising retirement rates, present female employment levels will be unable to meet the demands of a new wave of retirees and the resulting social benefit implications.
Why This Knowledge is Important
The Japanese economy is the world’s third largest, and many people see Japan as a model of economic strength and prosperity. However, the harsh reality is that Japan is a suffering nation that is trying to support its population year after year. Without assistance, Japan may find itself unable to provide for and maintain its population without making significant sacrifices, which would weaken Japan’s position and have an impact on the global economy.
Why is Japan’s economy growing so slowly?
- The Japanese economy has been in a state of stagnation since 1990, and COVID-19 has exacerbated the problem.
- The recovery from the COVID-19 epidemic in Japan is still incomplete, and maintaining it will be crucial.
- Japan’s reliance on China as a platform for its manufacturing investments has been underlined by supply chain concerns, growing labor costs, and political issues.
- Japan’s social security system is under strain due to a low birthrate and an aging population, as well as labor shortages.
What accounts for Japan’s low GDP per capita?
The Wall Street Journal just published an article about Japan’s stagnating economy and ongoing deflation:
Hiromi Shibata once spent a month’s salary on a cashmere coat, wore it a few times, and then retired it during Japan’s go-go 1980s. Her daughter’s notion of a shopping trip today in Shizuoka, the provincial capital, is rummaging through her mother’s closet.
….The United States appears to be leading the way out of an extended period in which central banks significantly relied on low and negative interest rates, as well as stimulus, to jump-start economy and keep prices from dropping.
…
Despite a long and intensive trial with ultralow rates, Japan is trapped. A penny-pinching generation has grown up knowing only economic depression, stagnant wages, and deflationa situation in which prices decrease rather than risea quarter-century after its property bubble crashed.
….Average annual growth has been less than 1% since then, with occasional recessions. In the late 1990s, prices began to decline…. Many economists thought the Bank of Japan’s stimulus package in 2013 would be enough to shake the country out of its slump of slow growth and declining prices…. According to some experts, the government should try even more fiscal and monetary stimulus. Others claim that the stimulus has already burdened Japan with so much debtnow at 230 percent of GDPthat the country is on the verge of economic catastrophe.
But there’s a lot more to this story than meets the eye. Obviously, the more people you have, the higher your GDP. The fact that Russia’s GDP is higher than Switzerland’s does not imply that it has a more developed economy. It just indicates that it is larger. GDP per working-age adult is the most important indicator for determining whether or not your economy is in good shape, as it indicates how productive your workers are. Let’s have a look at that:
Japan’s economy is functioning well, despite stubbornly low inflation. They have a higher GDP per working-age adult than we do. So, why are they growing at such a slower rate than we are? It’s only a matter of basic demographics:
Japan is rapidly aging. Its number of working-age people peaked in 1997 and has been steadily falling since then. Even if those people are as productive as anyone in the world, fewer workers equals lower GDP. When you put all of this together, you get the following:
This is the gross domestic product (GDP) per capita. That is, the amount of goods produced by Japan for each individual in the country. It has increased by 20% in the last two decades. And, with the exception of the Great Recession, that growth has been very consistent. It is not deteriorating. It’s not at a standstill.
Japan is doing well under the conditions. Each of their employees is just as productive as ours, and their output has increased slightly quicker than ours. When your population is dwindling, though, there’s only so much you can do. Japan is probably doing about as well as they can given the demographic realities.
I’ve taken away two things from this. To begin with, the Bank of Japan has few options for stimulating the Japanese economy. It’s already doing admirably. Second, despite this, Japan continues to experience deflation. Why? Deflation shouldn’t be an issue for them any more than it is for us if their economy is productive and growing. However, the fact that the working-age population is shrinkingand, since 2011, the overall population has been shrinkingseems to be driving deflation. This is particularly perplexing given that Japan’s deflation has continued despite significant BOJ efforts that, according to traditional economic theory, should have restored normal inflation levels.
So, why didn’t it happen? Is it actually a result of population decline? Is it something else entirely?