Economy of Japan II Group 1 II Section b (1)

8/10/2019 Economy of Japan II Group 1 II Section b (1)

1/18

Past Present

Group No

-Indrani

- Namita

-Snehith

-Himans

-Shahzeb-N. Ama


2/18

Meiji Period & Restoration (19thCentury - Pre World War II)

Miracle period (Post World War II - 1984/85)

Asset price bubble (1984/85 - 1991)

Lost 20 years (1991-2010)

Abenomics (2010/11-Present)

Outlook of Japan's economy


3/18

Growth rate in agriculture exceeded the growth rate of population substantiallyProduct of land and labor productivity.

The traditional sector of agriculture grew rapidly during the Meiji restoration.

Meiji government successfully financed the growth using the economic surplus

from the agricultural sector. The textile and foreign export earnings were still ve

limited.

Efficient use of its resources during the Meiji Restoration.

Meiji era attributed to relatively slow economic growth.

Agriculture driven growth till 1900. It provided a base for the economic

development.

First Contacts 16thCentury Nanban Trade

Edo Period - 1603-1868 Meiji Era 1868-19


4/18

Industrialization - The beginning

The Industrial revolution began in the Meiji era.

Industrial revolution first appeared in textiles, including cotton and especially silk.

Adopted the form of free enterprise capitalism.

Economic reforms included a unified modern currency based on the yen, banking,commercial and tax laws, stock exchanges.

Built industries such as shipyards, iron smelters, and spinning mills, which were the

to well-connected entrepreneurs.

Takahashi and the period of Great Depression

5 principles of Economic expansion

Took Japan off the gold standard, ended the convertibility of paper money for gold,

the exchange rate float, lowered interest rates, and introduced legislation to raise the

on the Bank of Japan's issuance of bank notes.


5/18


6/18

UnemploymentFood Shortage(Starvation)

EnergyShortage

UnemployedAgriculture, Coal Mines

Demilitarization & Economic Reforms

Economic Reforms to Recovery

Increasing Competitiveness

And

Reintegration to GlobalEconomy

Technology and technical know-howcountries, domestic innovation

Improvement in one industry influe

Rural Urban transfer of young work

Compartmentalized Competition : TLiberalization of 60s; Balance of Pa

1948-1972 : 8.2%Average Per Capita Income gro

Fixed exchange rate $1=360 Yen maintained 194


7/18

Industry Strength +Domestic Innovation

Changing business Conditions

Managers instead of owner-managers

Stability of labor management(lifetime employment)

Yoshida Doctrine : economic reconstruction, development;

saving on, military expenses

Income Doubling Plan 1960s

Role of MITI (Ministry of International Trade andIndustry)

Government: Low interest loans to sectors designed for growth

1951 US occupation ends; political

independence restored

1952 Japan becomes a member of th

World Bank

1955 Japan joins GATT (Still faces trad

discrimination)

1956 Japan joins the United Nations

1962 Japan joins OECD; IMF Article 8

exchange restriction for current

transactions); hosts the Tokyo O

Late 60s Tariff reduction implemented

Demand

Lagging productioncapacity

(investmentdemand)

New consumerdurables

Better quality andundervalued

exchange rate(Export expansion)

S

Int

h

Wpo

DECLINE AFTER 1970S : Two oil shocks (1973-74 and 1979-80);breakdown of the Bretton Woods fixed exchange rate system


8/18

Japanese Asset Price Bubble 1986-1991

What is a bubble economy?

A booming financial situation that is unsustainable, oftenseen in inflated land and stock prices, and low interestrates.

Plaza Agreement

Appreciation of Japanese Yen

Endaka Recession

Monetary Easing

Increased Spending

Increase in Stock Prices and Land

Monetary Tightening

Nikkei 225 dropped, Land Prices fell


9/18

MonetaryPolicy

Monetary Easing - Discount Rate slashed from 5.00%

(Jan,1986) to 2.50%(May, 1989)

Money supply became out of control

Monetary TighteningDiscount Rate increased from

2.5%(May,1989) to 6.00%(August, 1990)

YenAppreciation

Strengthened from 236.91/U$ to 123.16/U$

Again fell to 158.50/U$ and strengthened to 29.07/U$

AssetPrices(1985-1991):

In Six Major Cities ->Commercial Land Prices rose by 302.9%

Nationwide ->Commercial Land80.9%, Residential Land51.1%

After the bubble, residential land prices fell by 19% and

commercial land prices by 13%

StockPrices:

Increased from 13,000 in 1985 to a peak of 38,915 in 1989

Slid to as low as 22,687 in 1991


10/18

Phases ofLost Decade

Crush (19911994)

TemporaryRecovery(1995-96)

Financial Crisis(1997-98)

Obuchi Fiscal Policyand IT Bubble(1999-2000)

Crush of IT

Bubble andKoizumi

Reform (2001-2003)

Recovery(2004-2006)

Sub PrimeCrisis (2007-

2008)

GDP growth rate averaged around 1%

Debt to GDP Ratio amounted to 240%

FISCAL POLICY MONETARY POLICY

1990s Japan introduced a large number of fiscal stimulus packages.

Public Work

SME Finance

Employment Support and Tax Measures

Gradual Interest rate decrease from 6 % to fractional level fro

1991Mid 1995

1997 Japan government raised the consumption tax rate from 3% to

5%

Feb 1999 BOJ shifted to a zero interest rate policy

Sharp economic contradiction let to tax cut of 4 and 6.6 trillion in

year 1998 and 1999

August 2000 ZIRP lifted and interest raised to 0.25, Soon

economy fell back into recession and policy rate went back to z

2001 BOJ introduced quantitative easing policy

2003 and 2004 Ministry of finance undertook large scale f

exchange to stabilize the yen during the period of dollar weakn

2006 : Zero Interest rate policy ended


11/18


12/18

ABENOMICS revival strategy of economy of Japan 2012 onwa

MonetaryPolicy

(aggressivemonetary

easing)

GrowthPolicy

(Structural

Reform )

Fiscal Policy( expansion

of publicinvestment )

Immediate Goals to achieve

The immediate goal of Abenomics is15 years of deflation in Japan by raising infl

2 percent via monetary expansionJapansquantitative easing program is into double its monetary base (i.e. mocirculation and bank deposits at the BOJ) trillion yen by the end of 2014

Initiatives under Abenomics

Abesfiscal policy involves increased spending on shovel-readypublic infrastructure projects like disaster protection works that canrevenue . To that end, landstrengtheningstrategies have been suggested that would increase public investment by 100 to 200 trillionnext 10 years.

The government also adopted a 10.3 trillion yen supplementary budget in January 2013 and increased its budget for public works byfor fiscal year 2013.

Abesproposed structural reforms are based on principles established by JapansIndustrial Competitiveness Council. The initiatives hJune 5 include special economic zones to attract foreign investment, lower taxes on corporate investment and a promise to increasincome by 40 percent over ten years.

The government has already taken major steps by joining the Trans-Pacific Partnership (TPP) negotiations, despite opposition from fand other interest groups.


13/18

ABENOMICSVirtuous Cycle


14/18

Assessment and Prospects

Whether

yen depreciation willcontinue ?

Whether the

2 percent inflationtarget can be achieved

?

Whether the Japaneseeconomy can escape

from

the long-term slump ?

Whether fiscalproblems

will emerge ?

Abenomicspresents

four majorissues

The launch of Abenomics to January 2013, Jcurrent account turned negative, pushing thdownward. However, from February 2013, the caccount turned positive, implying fund receiptdisbursements will also put pressure on the yen.

The BOJ forecasts consumer price inflation (excan increase in the consumption tax) for 2014 and 21.4 percent and 1.9 percent. This includes increaimport prices following the weak yen. This amountacit admission by the BOJ that it will be difficJapan to achieve 2 percent inflation.

A surge in domestic facilities investment is u

even if exports soar on a weaker yen. Unless dodemand picks up appreciably, Japanese manufawill still be expected to prefer investment abroad.

On fiscal stability, the goal is to cut the primary to GDP to half of its 2010 level by 2015 and achprimary surplus after 2020.Even if Abenomics booeconomy in 2013, a slowdown is inevitable in 20to a hike in the consumption tax, and the gover

may have to increase spending.


15/18

Increase in Consumption Taxes in annual

increments of 1% from the present 5%

Will have a negative effect on GDP growth Consumption Tax Govt. bonds Tax revenues

to Nominal GDP ratio

Fiscal Consolidation

Inflation Rate

Consumption Tax rate can decline the Household savings.

As a result, it would be difficult for Household consumption to grow.

Prices may remain weak due to less demand and it will affect the inflation rate (2% target by Bo

Current Account

Last-minute demand before consum

tax hike resulted in a fall of Current Ac

surplusFiscal consolidation will support the

savings and as a result current accoun

will be put off for the time being.

Supply Capacity T k Ol i


16/18

Trans Pacific Partnership can improve export

environment

Average age is a concern; Average age of capital

stock of private enterprises16 years & Average

age of public capital stock20 years

Corporate tax cuts needed for boostinginvestment in technology

Supply Capacity

Policy Proposals

Further Consumption tax hikes to minimize sovereign default risk

More Quantitative stimulus which can result in increase of household wages A measure to

deflation

Avoiding restriction of growth by energy concerns & more efficient use of energy through prom

power saving

Corporate tax cuts for increasing investment & improvement of Export environment thro

proposals

Utilization of Human capital through greater support for female labor force participation to

the problem of increasingly aged workforce.

Tokyo Olympics

Production Inducement

Raising levels of Welfare & Consum


17/18

Source: OECD Economic Outlook (May 2014) ------OECD Average ------Jap


18/18

Economy of Japan II Group 1 II Section b (1)

Documents

Transcript of Economy of Japan II Group 1 II Section b (1)