Japan Term Paper

Pages: 8 (2425 words)  ·  Bibliography Sources: ≈ 7  ·  File: .docx  ·  Level: College Senior  ·  Topic: Economics

However, at the same time, aware of an aging population and its coming demands on resources, public investment was subsequently curtailed. Despite some increase in investment after 1994, by mid-2001, Japan had experienced 10 straight years in which economic growth had averaged less than 1.5%, and investment had been correspondingly weak. (Browne, 3+)

In the early part of the long cycle, the manufacturing sector is believed to be at cause. Industrial production in Japan had peaked right before the country's slowdown. Then business investment flattened out, while, for a time, consumption and government spending continued growing. However, the situation in Japan was made worse than similar situations more recently in the United States, for example, because in Japan, construction spending also plummeted; in other economies, that has not seen so vast a decline and has helped to bolster the total investment amounts.

More recently, however, Japan has seen a return of investment strength, and concurrently, a rise in land prices, which may have father effects on the robustness of investment. (Browne, 3+)

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Government spending: During the ten years of recession and low growth of the GDP in Japan, there has been a massive increase in Japanese government spending, and, as a result, in Japanese government debt. It has had amazingly little effect on long-term interest rates, possibly because Japanese savers are passive, or because of the sale of government bonds to support that debt to quasi-governmental agencies with a vested interest in seeing Japan thrive economically, or to a monetary policy engineered to accommodate the spending. The spending has not caused any inflation fears, a fact that was noted in the financial press as early as 1998. That year, The Economist noted that Japanese government bond yields:

fell as the government pumped the economy with... fiscal stimulus, as the yen plummeted by 40% from its high in the middle of 1995, and even as the government's debt climbed to 100% of GDP. By late [1997] the Japanese government was able to borrow more cheaply than any other government in recorded history. (Cited in Kuttner and Posen, 93+)

Term Paper on Japan Has Been, for the Assignment

Despite the enormous amount of government spending and the highest GDP ratio among the G-7 nations, and the second worst credit rating, Japanese government bonds yield is only 1.3%. But it as also been noted that despite the tumultuous fiscal policies that have arguably resulted in the current state of the Japanese economy, and the issuing of bonds, the Japanese government has not, in fact, reacted in a "spend-spend-spend" manner. (Kuttner and Posen, 93+) Instead, each year, the main budget is passed in April and a separate supplementary budget is also considered. Also, public works projects are usually required to have local matching funds, and there is a great deal of reciprocity in fiscal arrangements, especially tax receipts, between the federal and local governments (Kuttner and Posen, 93+) meaning there is more precise allocation and usage of funds than observers of U.S. fiscal arrangements can probably imagine.

Trade deficit: In January of 2001, Japan's economic challenges had resulted in its first trade deficit in four years, in part because of slumping demand from the United States. The Japanese Ministry of finance reported at that point that exports had plunged 5.1% over the preceding year, as Japan fell to a $824.1 million trade deficit, something it had not seen since January of 1997. In volume terms, which eliminates the effect of currency and price changes, exports dropped 5.1% in January after growing 1.8% in December. Further upsetting the balance and causing greater potential problems was the fact that imports had surged by 24.3% over the year, with imports of oil, textiles and information technology leading that incoming pack. (CNN Web site, 2001)

Japanese economists noted that this is affected by winter holiday behavior, but still believed the figures meant another slowdown for the Japanese economy, with a further thinning trade surplus in the rest of 2001. In fact, one government commentator noted that "export prospects are worsening at an alarming pace, removing one of the primary supports" of Japanese economic expansion (CNN Web site), despite the flat growth), over the previous two years. Part of the reasons for the falling exports was the strong yen (this is understandable, considering the control of government spending noted above, among other factors). This trend was further exacerbated by economic slides in the U.S., Europe and other parts of Asia, taking some of the wind out of the sails of potential buyers for Japanese goods and services. The yen did slide a bit late in the year, but observers did not expect a trade surplus until at least the third quarter of 2001; that may have been affected by the events of 9/11. Even in 2001, some observers noted that the trade deficit situation meant the mild recovery in the Japanese economy was over. Even Japan's Ministry of Economy, Trade and Industry noted that Japan's stop and go economy of the previous decade was "running out of steam." (CNN Web site)


Browne, Lynn Elaine. (2001) Does Japan offer any lessons for the United States? New England Economic Review.

Japanese exports, such as automobiles, have fallen by 5.1% in the year to January, 2001." (2001) CNN Web site, February 20. Retrieved May 8, 2004 http://edition.cnn.com/2001/WORLD/asiapcf/east/02/20/japan.deficit/

Kobayashi, Yoko. (1998) Economists denounce mini-bubble concept. Business Asia, 6(12), June 29.

Kuttner, Kenneth N. And Adam S. Posen. (2001) The Great Recession: Lessons for macroeconomic policy from Japan. The Brookings Papers on Economic Activity.

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