Executive SummaryThe following report has beenprepared as a course work for the subject of Issues in Global Business andStrategic Concepts. The report analyses Japan’s current economic status and thereasons behind the woes of the economy. Relevant Domestic and Internationalissues have been discussed briefly but in as much detail as possible. A brief description of theevolution of Japanese economy sets the scene for the analyses, which looks intothe post World War II economic situation and the development of the differenteconomic aspects under the light of Globalisation. This follows up with the chapter on themodern economy of Japan, which mainly discusses different aspects of’Abenomics’ –the different fiscal, monetary & regulatory reformationsdesigned and implemented by the incumbent Prime Minister Shinzo Abe of thecountry. The second chapter of the reportbrings in the analyses of the possible issue that the Abenomics have beentrying to fight since 2012, and the likely problems that resulted even fromthese new kind of policies. The analysis starts with a macroeconomic overviewof Japan, its economy, its foreign policies and relations etc.
through a PESTLEAnalysis. The major issues identified through this analysis are outlined in thefollowing chapter. These issues are mainly the ones proposes by the writer forJapan to focus on.The third and final chapter ofthis report briefly outlines all the major steps that Japan can take to addressthe issues outlined in the previous chapter of the report. One issue called formultiple steps to resolve.
The proposed stepsmainly give the idea of different ways to increase the overall long-termsustainability of the fiscal policies, to stabilise the issue with tougheningwage conditions and to rebalance the employee-vacancy ratio, and to propel theeconomic growth to a more visible inflationary route. Table of Contents Executive Summary. A Introduction. 1 1. Japan and its Economic Evolution.
1 1.1. Japan’s Economic Profile Post World War II 1 1.2.
Japan in the Global Economy. 3 1.2.1.
‘Abenomics’ & Japan. 3 2. Key Issues for Japan to Prioritise. 5 2.
1. Japan’s PESTLE Analysis. 5 2.2.
Three Key Issues to Focus on. 6 3. Steps to take for Japan. 8 Conclusion.
8 Reference. i Introduction Japan, a sovereign island nation in East Asia, wakes upevery day with the thoughts of being challenged by the nature and being shakenby the mighty earthquakes (42 major quakes between 1945- 2017) yet hadsurprised the world with its economic growth in the 1980s. Japan became secondamong the world economies following its robust economic growth which started inlate 1960s (Hill, 2016). It was foreseenthat Japan would become the largest economy within 2010. Japan Capital: Tokyo Population: 126.4 mil Area: 377,864 square km Language: Japanese Religions: Shintoism, Buddhism Life Expectancy: Men – 81 yrs.
, Women-87 yrs. Currency: Yen Table 1 Japan Profile(BBC Monitoring, 2017)All of its major leading economic indicators and lagging economicindicators, like the stock market, manufacturing activities, housing, retailbusinesses, GDP, income and unemployment levels, inflation, trade balance etc.changed noticeably throughout the years after the World War II (BBC News Services, 2017).
1. Japan and its Economic EvolutionJapan’s economy after the World War II faced numerous problems due tothe war devastations and its defeat. It was in such a bad shape that was dubbedas ‘less-developed country’ in 1952 (Jansen, 2000).
Working systematically with itseconomy, Japan transformed itself to a ‘developed’ country directly from a’less-developed’ one, and it was the first such country to be able to do so (Buruma, 2003). 1.1. Japan’s Economic Profile Post World War IIAmong the numerous economic difficulties, few stood out; unemployment,energy and food shortages, and inflation are few such difficulties. Theunemployment problem came in the form of underpaid people employed in themassive agricultural projects going on throughout Japan. Although technicallythese agricultural projects absorbed more than the 13 million people leftwithout jobs after the military was disbanded, this problem of underpaid jobswould persist in Japan long after the WW II. The problem of energy and foodshortages ensued as well.
The energy supply of Japan then depended on coal andas such the shortage naturally came after its defeat in WW II. Again the foodsupply, mainly the rice supply, suffered from shortages too in between 1945 and1946. On top of all these, inflation came in the form of the large amount of provisionsfor the military expenses which came in during and after the wars. These mainlyincluded the payments of the disbanded troops, loss compensations,payments for the troop goods etc. (Takada, 1999). Figure 1 Tax Decreases by Preferential Measures (1950s-70s) (Shinji Yoshioka, 2016) The economy after the war advanced on the broken industrial structureleft from the widespread destruction. The journey from a ‘less-developed’ country to a ‘developed’ one afterthe World War II became successful because of some nationwide phenomena, likehigh percentage of personal savings and noticeable private sector investmentsas shown in Figure 1, robust workethic of the workforce, abundant supply of low-cost oil, selective governmentintervention in the private sector industries, and not to mention theinnovative technology.
Figure 1 explains fewof these major factors; it demonstrates how savings has been promoted throughtax breaks since the mid-60s, while promoting investments in enterprises andindustries started from the early 60s (Shinji Yoshioka, 2016). Japan was one ofthe main beneficiaries of the idea of free trade economy professed inInternational Monetary Fund; within 1968, the country’s economy emerged as thesecond largest one. It remained in this position throughout the 70s, 80s, 90s,2000s, until China surpassed it in 2010. Japan’s status changed to a donorcountry in the late 60s and has since been providing aid to differentdeveloping countries (Gordon, 2003). 1.
2. Japan in the Global Economy1.2.1. ‘Abenomics’ & JapanTo come to the modernJapan’s economy, it has grown out to be a highly export-driven one. However,the economy has suffered the downside of a mostly export-dependent economy; its GDP fell into a decreasing trend from 1997 and thisdragged the economy to a deflation till 2012 as shown in Figure 2.
While Japan fought deflation for about a decade,Shinzo Abe came in the ground as the Prime Minister of Japan in 2012 electionand thus began the journey of ‘Abenomics’ and Japan’s long-term recovery path.The special term was given to the collection of monetary, fiscal and economicreform measures Shinzo Abe proposed and implemented subsequent to his assumptionof office in late 2012. This was also the year Japan’s economy demoted to thethird largest one from the second largest status. These reforms implementedcertainly spiked up the overall economic condition and these continue to haveimpact on the continued expansion and growth of Japanese economy (Cabinet Office, Japan Macro Advisors, 2017). Figure 2 Real GDP Growth YoY %(Cabinet Office, Japan Macro Advisors, 2017)Till2016, about 61% of Japan’s GDP was contributed by private consumption, about21% by government consumption and only about 15% and 17% by exports and importsrespectively Table 2. Items in Year on Year (YoY) % GDP Private Consumption Private Capital Expenditure Government Consumption Exports Imports 2013 2.7 2.4 7.
5 1.3 6.2 9.2 2014 -0.4 -1.8 2.
3 0.3 12.6 4.7 2015 1.1 0.2 3.3 2.
1 -0.4 0.7 2016 1.5 0.
6 1.7 0.2 4.8 -1.6 2017 / Q3 2.1 0.9 3.8 0.
2 6.4 2.4 Table 2 Real GDP of Japan & theComponents (YoY%)(Cabinet Office, Japan Macro Advisors, 2017)As the situation inthe third quarter of the Financial Year 2017 stood, its economy continued togrow very moderately, where the trend of moderate rise on exports continued,corporate fixed investments kept on increasing (as the profits of corporationsare on the rise moderately), and although the public investment increased, thehousing investments hardly improved.
However overall, Japan experienced thismoderate growth for the seventh quarter at a row (Trade Economics, Cabinet Office – Japan, 2017). 2. KeyIssues for Japan to Prioritise2.1.
Japan’s PESTLE AnalysisBefore diving into the nationaland impactful international issue which Japan needs to prioritise in itsnational and foreign policies, a macro-analysis is provided through PESTLE Analysisof Japan as a country:Politically Japan is a monarchy with multipartyparliamentary democratic system. Here, the monarch acts as a ceremonial leader,and the Prime Minister is the head of government and the state. Currently Japanhas five political parties, namely Liberal Democratic Party, Democratic Partyof Japan, the People’s New Party, the Social Democratic Party, and the NewClean Government Party. Japan is a United Nation’s membercountry and one of the countries from the G8. As an economic entity, Japan is amember of ASEAN (Association of South East Asian Nations) and APEC (AsiaPacific Economic Cooperation).Japan has international disputes over energy,marine resources, land etc. with countries like Russia, South Korea, Taiwan,and China (Frue, 2016).
Economically Though Japan has the potentialto be the strongest economy is the world, few economic and internationalindicators dragged it behind China and the USA. The country is going through adeflationary trend, although inflation is picking up, but rather slowly.Unemployment reached its lowest since 1993 in 2017 (Q3), to a 2.
7%, but wagesand as such household spending is still low – although the household spending rose(1.7%)above the expected value(0.5%). This rising household spending is howeverexpected to get a blow again as the prices of fresh food and possibly oil areexpected to rise by 2018 (Nohara, 2017). With more than 127 millionJapanese residents, sociallyJapan emphasizes a collective culture. Social inter-dependence isemphasized even in modern Japan (U.S.
Library of Congress, 2017). Japanese women areexpected to contribute to earnings, unsurprisingly birth rates have beenparticularly low for few years since 2014 (IMF Country Report, 2017).Technologically Japan is one of the most advanced in the world, especially in terms oftelecommunications. Japan leads the world in research and development,particularly in biomedical works, electronics, machinery, robotics, automobilesetc. Japan also uses the most robotic technologies in manufacturing plants andother industrial and/ research projects (Tokyo Times, 2016).
Legal System in Japan is independentand fair; overall score of Japan’s Judicial Effectiveness is 73.8, which isconsidered to be of a fair system. The system also is apparently fair in termsof protecting property right. Only because of the close network in certain relatedindustries, corruption can occur when it comes to Government project tenders (The Heritage Foundation, 2017).Much like other industrially urbanised countries, Japan faceschallenges in terms of environmental issues.
Waste Management has been a major issue for the country. Once,the country’s efforts to dispose of industrial wastes made its air pollutionproblem more visible. Among the disastrous events, the Fukushima nuclearincident which resulted in deadly environmental pollution comes to fore.However, Japan is one of the few countries which aggressively implements cleantechnology measures (Clark, 2017).2.2.
Three Key Issues to Focus onThefirst issue for Japan to focus on is the imbalance of employable population to the employmentsavailable (with a stilltighter wage streak). The country’s unemployment has been historically low, butthe ratio of position openings to prospects is 1.49, which indicates a laborshortage. This phenomenon has been widely attributed to a combination of adecreasing employable population (at a rate of about 700,000 people a year) andlow rate of wage increases by the employers because of the prolonged period lowinflation. The habit of workers of staying with the same employer for theirlifetime can be another reason (Kalish, 2017). This issue is resulting inoverall low household wage gains and as such the private consumption decreasedabout 0.5% (Nohara, 2017). An ever increasing government debt, mainly domestically held debt, is the second issue that Japan needsto work on to be on a better track of national growth and internationalcompetition.
The government debt to GDP ratio has crossed 220% recently, whichis alarmingly high for the country (Organisation for Economic Co-operation and Development (OECD), 2017). In 2016, this debtwas 15 times the tax revenue. Deflation has plagued Japan, as mentioned in theprevious chapter, subsequently Abenomics got implemented. Central Bank of Japanreduced the debt of government by reducing interest rate and purchasinggovernment bonds, supplying the financial system with more cash to induceinflation. However, it has been predicted by multiple world class analystorganisations and financial bodies that if everything remains constant, Japan’sdebt repayments will exceed its tax income within 2041; this prediction assumesthat the interest rate stays around 1.1%, however if the rate increases,government has to default earlier (Pham, 2017). The third most important issues Japan needs to focus on is conservatism towards InternationalTrade deals, especially bilateral ones. As apart of the deregulation, Japan was expectant on the Trans-Pacific Partnership(TPP) to ease up the international free trades, but hope was abandoned when theUSA pulled out of the agreement.
For Japan to function better in the worldeconomy, it has to participate, and lead in more bilateral trade agreements, asexport oriented countries like China and Germany may start aggressivedevaluation to gain more export market share, which will eventually weakenJapan’s already weakened currency (James McBride, 2017). 3. Steps to take for Japan Steps for reflating the economyof Japan, establishing its economy in a state of a faster growth trend,constructing and implementing policies to influence private spending whileaging populace is increasing and achieving an overall sustainable fiscal areimportant. Few such possible steps are outlined below: Although a rise in total income of Japan’spopulation may not directly result into increased consumption and increasedhouseholds expenses, even a 1% increase in total income within 2018 may result in the expectedreflation of the Japanese economy (Nohara, 2017). Increasing the participation of women in the employmentsector through incentives, not by negative reinforcementslike the currently used withdrawal of spouse tax benefits, is also important toencourage faster economic recovery. Moreover, a more dense inflow of immigrants alongpaired with more national investments (by relaxation of regulations againstcompetitiveness in similar industries) in the market will help to push theinflation up and boost the economy faster (Kalish, 2017). A reform in the fiscal policyneeds to be done to reduce the debt-GDP ratio to maintain the building trust onJapan’s Fiscal sustainability.
Maintaining this trust is absolutely important tokeep its financial sector afloat and the real economy thriving; otherwise, theworld economy may experience a negative ripple effect. (Organisation forEconomic Co-operation and Development (OECD), 2017). Trade protectionism has been akey characteristic of Japanese foreign trade policy. However, steps need to betaken to stabiliseYen’s devaluation and still maintain the export growth rate currently achievedthrough trade liberalisation. This can be achieved in part by initiating bilateral free-trade deals with other Asian giants like China. ConclusionJapanwill eventually be able to overcome the slower growth of its economy and aalmost non-existent liberal trade deals through following the Abenomicscurrently implemented, if only no major shock like the explosion of debt-GDPratio occurs; this may happen due to widening gap between its nominal interestrate and the nominal GDP rate. Otherwise, the speculations of an impending doomon the overall Japanese economy will most likely be blown out (Wakatabe, 2017).ReferenceBBCMonitoring, 2017.
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