Rising producer costs have not yet filtered through to consumer prices, owing to entrenched expectations built up over decades of low or no inflation. Import price rises are notoriously difficult for domestic businesses to pass on to consumers. At a news conference in October, Bank of Japan Governor Haruhiko Kuroda blamed this hesitancy on habits developed during the country’s recurring periods of deflation. Companies have a compelling motivation to oppose hikes. Kikkoman, a soy sauce manufacturer, announced a 4-10 percent price rise starting February last week. In America, such an event might go unnoticed. However, it became national news in Japan.
Another important reason is Japan’s sluggish consumer recovery. The third quarter of the year saw a drop in private spending, which is now 3.5 percent lower than it was at the end of 2019. In Japan, spending on durable goods, which accounts for majority of the country’s inflation, has been virtually unchanged over the previous eight years.
The second paragraph is right; Japan’s low inflation is due to a lack of consumer spending. (While I prefer to concentrate on NGDP, the two aggregates tend to move in lockstep.)
Low inflation is unavoidable in Japan due to the lack of NGDP growth. The rumored “Firms’ “reluctance” to raise prices (stated in the first paragraph) has no bearing on Japan’s low inflation. It’s a mistake to mix together causes with symptoms. (On the other hand, in America, people complain about “price gouging” by oil firms, which is also false.)
It is theoretically feasible that enterprises’ hesitation to raise prices will result in decreased inflation, at least temporarily.
Assume the BOJ raises Japanese NGDP at a rate of 5% per year for the next few years.
If Japanese companies refused to raise prices, real GDP would rise at a rate of 5% each year.
However, at some point, you will run out of workers, and the rate of increase in real output will be unable to continue.
However, this is not the case in Japan, where NGDP growth has been minimal since the late 1990s.
The lack of Japanese inflation since 1996 can be explained entirely by slow NGDP growth (i.e. tight money).
There’s nothing left to explain from Japanese firm pricing behavior after accounting for near-zero NGDP growth.
PS. Take a look at the graph again.
It displays NGDP levels rather than growth rates.
This graph is one of the most perplexing in the history of modern macroeconomics.
By the way, Japan’s overall population in 2020 will be roughly the same as it was in 1996, implying that per capita NGDP will remain unchanged.
Imagine not getting a raise for the next quarter-century!
(In actual terms, Japan has done OK, but in comparison to countries like the United States, Australia, and Germany, its performance has been a bit disappointing.)
How did Japan manage to avoid inflation?
- Japan’s “Lost Decade” was a period from around 1991 to 2001 when the country’s formerly booming economy slowed significantly.
- The Bank of Japan (BOJ) raised interest rates to temper the real estate market, which contributed to the economic slump.
- While a credit crunch was brewing, the BOJ’s policies produced a liquidity trap.
- Using public funds to rebuild bank balance sheets and preventing deflation and inflation from producing stagnation are among the lessons learned from Japan’s “Lost Decade.”
What is the matter with Japan?
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.
What accounts for Japan’s low GDP?
Japan’s economy was the envy of the world in the 1980s. It grew at a breakneck pace, looking poised to overtake the United States as the world’s greatest economy. But that didn’t work out. In 1990, an asset bubble that had been building during the 1980s burst, forcing Japan’s economy to fail. This pushed Japan’s economy into a prolonged era of stagnation and deflation, dubbed the “Lost Decade,” now plural, which has lasted until now.
What is the lost generation in Japan?
The “lost generation,” also known as the “employment ice age generation,” is a group of Japanese employees in their mid-30s to mid-40s. They began looking for work after the economic boom burst.
Why is the Japanese economy stagnant?
Between 1991 and 2003, the Japanese economy grew at a pace of only 1.14 percent per year, while the average real growth rate between 2000 and 2010 was under 1%, both far below that of other developed nations. Debt levels continued to climb in reaction to the Great Recession in 2008, the Tsunami and Fukushima Nuclear Disaster in 2011, and the COVID-19 pandemic, which resulted in a new recession in 2020, further damaging the Japanese economy.
In terms of the overall Japanese economy, between 1995 and 2007, GDP declined from $5.33 trillion to $4.36 trillion in nominal terms, real wages fell by roughly 5%, while the country’s price level remained unchanged. While there is some disagreement about the magnitude and quantification of Japan’s setbacks, the economic impact of the Lost Decades is widely recognized, and Japanese officials continue to wrestle with its implications despite the fact that they have had minimal economic impact.
What is Japan’s shadow side?
The Grim Side of Japan is a compilation of Japanese mythology that includes folk stories, black magic, protection spells, monsters, and other dark interpretations of life and death. Much of the information originates from ancient manuscripts that have never been translated into English before. Antony Cummins has also combed through long-forgotten Victorian works on Japanese mythology, as well as explaining modern academic research on Japan to non-experts. Antony has converted the intricate facts into a modern depiction, complete with stories and details that allow a modern reader to explore the world of old Japan’s forgotten traditions and superstitions, some of which still exist today. The Dark Side of Japan is lavishly illustrated, with pictures displaying the book’s ‘hellish’ notions. They’re also remarkably hellish. Consider the kappa, which are goblin-like creatures with a child’s body, a tiger’s face with a beak, and a turtle’s shell. People are dragged into rivers and ponds and drowned. If a lady is raped and gives birth to a kappa baby, the baby is hacked to death.’
Does Japan welcome international visitors?
“Most Japanese people believe that foreigners are foreigners and Japanese are Japanese,” said Shigehiko Toyama, an English literature professor at Tokyo’s Showa Women’s University. “There are clear distinctions to be made. Foreigners who speak fluently blur those lines, which makes the Japanese uncomfortable.”
Is Japan’s military underdeveloped?
Japan is now placed fifth in the world in terms of overall military might, after the United States, Russia, China, and India, and its defense expenditure is ranked sixth in the Global Firepower rating site’s 2021 list of 140 countries.
Why is Japan so prosperous?
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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