JAPANA brief look into the Japanese economy.

By

Mansour O Althenayan & Lu Han

Instructor: Dr. David Worrall

INTRODUCTION

Japan is one of the most densely populated areas in the world. According to BBC Japans population as of 31st of March is 126,393,679 people.

Further more the Japanese economy is the worlds third largest economy. Unfortunately ever since 1989 the Japanese economy has been stuck in a liquidity trap, were Large budget deficits do not drive up interest rates, printing money is not inflationary, and reducing government spending has little impact on the economy.

BULLET POINTS

Aggregate DemandAggregate Supply (Short Run)Aggregate supply (Long Run)

AGGREGATE DEMAND

• Consumption:

Recently the Japanese government raised consumption taxes from 5% to 8% this tax hike is the first of its kind in 17 years the last one before that was in 1997 were consumption taxes rose form 3% to 5%, and it is set to rise again in 2015 to 10% according to BBC news.

The reason Prime Minister Shinzo Abe took these measure is that Japans has a very low Elderly to young people ratio, also one of the lowest birth rates in the world. All of these factors contribute towards Japans low consumption rate and high dependency on imports.

AGGREGATE DEMAND

• Government Spending:

According to Trading Economics website “Government Spending in Japan increased to 102966.30 JPY Billion in the first quarter of 2014 from 102836.80 JPY Billion in the fourth quarter of 2013. Government Spending in Japan averaged 88230.11 JPY Billion from 1994 until 2014, reaching an all time high of 102966.30 JPY Billion in the first quarter of 2014 and a record low of 68733.80 JPY Billion in the first quarter of 1994” (Trading Economics, Cabinet Office, japan).

AGGREGATE DEMAND

• Investment:

Japan has a high FDI because major Japanese companies that are worth trillions are turning their eyes to investment opportunities outside japan due to the slow growing economy their.

“The fear is that offshoring of manufacturing will lead to a decline in investment and loss of employment opportunities at home,” Izumi Devalier, Japan economist at HSBC Holdings

In Japan, cash and deposits represent more than half of total household financial assets, whereas the equivalent figure for the U.S. and Europe is 16 percent and 30 percent, respectively. Also on of the reason japans isn’t an ideal investment is that it has the highest wages in the world.

AGGREGATE DEMAND

• Net Exports:

“Import prices from Japan to the US declined 2.4% in July compared with a year earlier, the sharpest 12-month drop since December 2002, according to Labor Department data released Tuesday. The cost of imports from America’s fourth-largest trading partner have trended down for six consecutive months.” (E.Morath)

Prices people in the U.S pay for Japanese imports have fallen in the last year

AGGREGATE SUPPLY (SHORT RUN)

• Cost of production:

Japan's industrial production, manufacturing PMI and consumer prices have risen while jobless numbers have fallen. Industrial output climbed by just 3.2% missing expectations for 3.6% growth.

• Price of Raw Materials:

Price of raw materials in japan has reached its highest 143.0 in Jan 2014 while steadily declining to 139.20 this April.

• Price of Labor:

Japan has the highest paying wages worldwide, according to Laborsta.org total earned for men and women in the education sector 376800 JPY among others such as the construction sector 316700 JPY.

AGGREGATE SUPPLY (SHORT RUN)

• Levels of tax and subsidies:

Taxes paid by individuals in japan fall under 6 categories:

- Income tax : Paid annually by individuals on the national, prefectural and municipal levels

- Enterprise Tax: Prefectural tax paid annually by self-employed individuals engaged in business activities.

- Property Tax: Municipal tax paid annually by individuals who own land and housing.

- Consumption Tax: Paid by consumers when they purchase goods and services

- Vehicle related Tax: A prefectural automobile tax is paid annually by individuals who own a car, truck or bus.

- Liquor, Tobacco and Gasoline Taxes: paid by consumers when they purchase alcoholic beverages, Tobacco or gasoline.

AGGREGATE SUPPLY(LONG RUN)

• Available Land and Raw Materials:

Due to Japan having many mountains only 15% of it is available for agriculture and housing, as for raw materials japan exports silica sand, aluminum, sulfide iron ore, fluorite, heat insulating material among few others.

• Quantity and productivity of labor:

labor productivity is high relative to quantitate productivity in most of the Japanese manufacturing industries. Manufacturers focus on high productivity rather than high quantity.

• Quantity and productivity of Capital:

quality of capital is generally more important to increasing productivity than the quantity of capital.

AGGREGATE SUPPLY (LONG RUN)

• Level of entrepreneurship in the economy:

• In 2000-2009, Japan recorded one of the lowest rates of entrepreneurial activity. Entrepreneurs face difficulties when starting their own businesses. Some of these difficulties are receiving loans from banks, the pressures of deflation, weak domestic demand, and tough competition within the country.

BIBLIOGRAPHY

• BBC. (2014). Japan raises sales tax for first time in 17 years. Available: http://www.bbc.com/news/26830486. Last accessed 15 May 2014

• JOE WEISENTHAL . (2014). In Less Than Two Days, Japan Will Walk Headfirst Into An Economic Buzzsaw Read more: http://www.businessinsider.com/japanese-consumption-tax-2014-3#ixzz32I41ls7r. Available: http://www.businessinsider.com/japanese-consumption-tax-2014-3. Last accessed 15 May 2014.

• Trading Economics. (2014). Japan Government Spending. Available: http://www.tradingeconomics.com/japan/government-spending. Last accessed 15 May 2014.

• Moran Zhang. (2013). Japanese Foreign Direct Investment (FDI): Japan Inc. Seeking Growth Abroad. Available: http://www.ibtimes.com/japanese-foreign-direct-investment-fdi-japan-inc-seeking-growth-abroad-1318357. Last accessed 15 May 2014.

BIBLIOGRAPHY

• Finfacts Team. (2013). Japan's industrial production, manufacturing PMI and consumer prices rise. Available: http://www.finfacts.ie/irishfinancenews/article_1026469.shtml. Last accessed 18 May 2014.

• Laborsta.org. (2008). Japan. Available: http://laborsta.ilo.org/STP/guest. Last accessed 15 May 2014.

• Tetsuji Yamada, Tadashi Yamada, Guorn Liu. (1991). Labor Productivity and Market Competition in Japan. Available: http://www.nber.org/papers/w3800. Last accessed 15 May 2014.

Reason：1. Bubble economic

2. Money supply is slowly

3. Technology development

quickly

4. Lack of demand

5. Asset deflation

6. Increase import

http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG

http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true

http://www.stat.go.jp/english/data/roudou/results/month/index.htm

http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true

Year GDP($ trillion)

2008 4849

2009 5035

2010 5495

2011 5896

2012 5916

http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true

Year GDP per capital($)

2008 37972

2009 37473

2010 43118

2011 45135

2012 46731

GROWTH RATE (GDP)

http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true

Year GDP

2008 -1.0%

2009 -5.5%

2010 4.7%

2011 -0.6%

2012 2.0%

PRODUCTION POSSIBILITY FRONTIER (PPF)

Improve PPF

1.Use time product computers include cars

2.Trade cars with Korean

3. Train university students entrepreneurial skills

http://www.theodora.com/wfbcurrent/japan/index.html

BALANCE OF TRADE

http://www.stat-search.boj.or.jp/index_en.html

Year Balance of trade(million $)

2009-2010 500

2010-2011 -950

2011-2012 -400

2012-2013 -350

2013-2014 500

EXCHANGE RATE （ JPY-USD）

http://www.xe.com/currencycharts/?from=USD&to=JPY&view=5Y

GOVERNMENT POLICIES Fiscal policy

1. Increase pre capital income

2. Increase the tax

3. Limit extend bond

Monetary policy

1. Increase in the monetary base 70 trillion yen every year.

2. Bank of Japan will improve 150 trillion yen for Japan's economy in the next two years

Supply side policy

1. Relax the capital supply

Exchange Rate policy

1. Stop Yen exchange rate increase

2. Yen intenationalization

http://www.boj.or.jp/mopo/index.htm/