Economic Analysis of Japan Assignment 2022

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Economic Analysis of Japan
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1Economic Analysis of Japan
Table of Contents
Introduction......................................................................................................................................2
Production Output Performance......................................................................................................2
Unemployment................................................................................................................................4
Price Level.......................................................................................................................................6
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

2Economic Analysis of Japan
Introduction
Japan is one of the developed countries in the world. The major sectors of the country are
agriculture, service and manufacturing. Among the three sectors service sector is the largest
sector of the country and it contributed 68.78 % to the GDP of the country in 2016. At position
second comes the manufacturing sector and it contributed 29.3% to the GDP of the country
(Katz, 2015). Finally comes the agriculture sector, it is the smallest sector among the three
sectors mentioned here and it is evident from the contribution of the sector in the GDP of the
country in 2016, which is recorded at 1.15%. The main products of Japan are automobile,
electronic goods, iron and steel, copper and semi-conductors. Japan also export all these product
to other countries of the world. In addition to that the top 5 exporter of Japan’s products are
China, the United States, Taiwan, Hong Kong and South Korea. Considering, the GDP of the
country for the last ten years it has been observed that the country has performed well in the last
ten years and due to that the GDP has increased from 2008 t0 2018. The most important
companies in Japan are Softank Group, Toyota Motor Corporation, Nippon Telegraph,
Mitsubishi UFJ Financial Group and Telephone and Japan Post Holdings.
Production Output Performance
Gross Domestic Product (nominal) is the entire amount of final goods and services
manufactured inside a country in a specified time period. GDP is measured in currency value
terms and it does not exclude the effect of the inflation rate and thus actual output of the country
is not reflected through GDP (Garin, Lester & Sims, 2016). Therefore, to find the actual output
of an economy the nominal GDP is divided and thus effect of inflation is removed from the GDP
values and it gives the actual value of the output produced (Nolan, Roser & Thewissen, 2016).

3Economic Analysis of Japan
The new value obtained for the GDP is known as Real GDP. Hence, Real GDP is the true
reflector of output created by a country in a given period of time.
Graph 1: Gross
Domestic Product of Japan (JPY Billion)
GDP of Japan is showed in the above graph from 2008 to 2018. The time period is considered to
assess ten years production performance of the country. In 2008, the GDP of Japan was 510000
JPY billion and after 10 years in 2018 the GDP has reached for the country to around 540000
JPY billion. It should further be considered that during this 10 years phase the country
experienced recession in 2008-2009, that hit the entire world. In that recession period, the GDP
of the country fell below 450000 JPY billion in 2009. Thus, from that level of GDP, Japan
improved and expanded by around 20% (Foster, Grim & Haltiwanger, 2016). This growth in
GDP of Japan is however not due to a sudden progress or development in the economy. The
GDP of the country has grown gradually after the conclusion of the recession period. The growth
of the GDP of Japan during this period has shown more or less stable growth with minimal
fluctuations. Japan was struck badly by the economic recession and it pulled down the economy
of the country by the significant amount but somehow Japan was able to recover from the

4Economic Analysis of Japan
situation of the recession due to the measures it has taken to control the condition. The measures
that the country took during the period of recession was expansionary monetary and fiscal
policies supported by the other small tools such as reduction in household consumption and
increase domestic savings (Furceri, Loungani & Zdzienicka, 2018). The expansionary fiscal
policies used by Japan was cut in tax rates and for expansionary monetary policy the government
of Japan had reduced the interest due to which the investment became cheaper and the business
houses were released from a significant amount of tension that allowed them to sustain the
recession phase and eventually the country recovered from the recession. Another factor that
improved the GDP of the country is the increase in productivity of the labour that has contributed
to the economy significantly. With passage of time the skill of labours increases as suggested by
the learning curve (Boone et al., 2015). Therefore, in long run the skill of labours increases
significantly and their productivity increases and thus the overall productivity of the country
increases. Therefore, from the above discussion on GDP growth of Japan it can be understood
that the economic performance of Japan was not significantly poor, rather it can be said that eh
country did a fair job in improvement of production performance of the country. From the data
of it is evident that the economic growth of Japan has improved visibly due to significant
contribution from manufacturing and service sector of the country.
Unemployment
The economic condition in which an amount of workers participating in the workforce
with willingness of doing work but remained in the work force without any job are called
unemployed workers and the phenomena is known as unemployment (Hall, 2017).
Unemployment is further categorised under three broad heads and that are frictional, structural
and cyclical unemployment (Vuillemey & Wasmer, 2017). Structural employment can be

5Economic Analysis of Japan
defined as the kind of unemployment that occurs due to mismatch between skill acquired by the
available labour and the skill required by the employers (Quercia, Pennington-Cross & Tian,
2016). For example if there is job vacancy for accountant but available workers are all engineers
then the workers will not get the job and they become structurally unemployed. Likewise, in the
case of cyclical unemployment there occurs joblessness due to difference in demand for jobs and
supply of jobs. Cyclical unemployment majorly occurs during the period of economic slowdown
or recession (Mueller, 2017). Thus, it is not as regular like frictional or structural unemployment.
Additionally, frictional unemployment can be defined as the type of unemployment that take
place when a worker stay unemployed voluntarily while switching jobs or due to search for
better jobs. Frictional unemployment and structural unemployment are the most regular kind of
employment that is found
generally in any
economy.
Graph 2: Unemployment Rate in Japan
Source: (Tradingeconomics.com, 2019)
From graph 2 it can be observed that the inflation rate in Japan in the last ten years has
remained below 5.5%. However, the average unemployment in the country has been at around

6Economic Analysis of Japan
4%. The rate of unemployment of Japan in 2008 was around 4%. With advent of recession
period the unemployment rate increased drastically and touched the mark 5.5% in 2009. After,
end of recession period the unemployment rate of the country again started to decline and it kept
on decreasing steadily with less fluctuations until 2018. In 2018 the unemployment rate of Japan
was recorded at around 2.5%. Therefore, the current unemployment of the country is quite low
and the trend line in the graph is downward sloping that suggest that the unemployment of the
country will further fall in future. The types of unemployment that are mostly visible in the
economy of Japan are frictional and structural unemployment. Frictional unemployment are
mostly voluntary in nature thus it is not a concern of worry for the country. However, the
structural unemployment is the main problem of any economy likewise it is a matter of concern
for Japan too. Thus, to decreases the amount of structural unemployment in the country the
government should try to enhance the skill of all the available workers such that the instance of
mismatch of skill available and skill required mitigates and thereby structural employment in the
economy decreases. To implement effective polices the government of Japan should monitor the
job market more minutely and only then unemployment problem Japan will be solved.
Price Level
The price of goods and services in an economy increases over time and this rise in price
is known as inflation under theory of economics. Inflation occurs due to many reasons but they
are mainly categorised under demand driven inflation and supply driven inflation. Inflation that
occurs due to rise is consumption or overuse of any product are all demand driven and are also
known as demand pull inflation (Bernanke et al., 2018). On the other hand, inflation also occurs
due to increase in unavailability of factors of production, rise in price of labour and natural
calamities destroying produced good. This kind of inflation is also called cost push inflation. The

7Economic Analysis of Japan
inflation rate increase due to above mentioned reasons (Summa & Serrano, 2015). Conversely,
inflation rate decreases if the goods demand reduces or the supply of factors of production
increases. Fall in price of factors of production reduces the cost price of goods as well and
thereby price level of the economy decreases. Therefore, inflation rate of the economy decrease.
In graph 3, the rate of inflation of Japan from 2008-2018 have been shown to make the
analysis of the change in price level in the economy of Japan. The average rate of inflation of
Japan in the last ten years have been around 1%. However, the transition of inflation rate from
2008 to 2018 has been quite fluctuating and it is evident from the skewed inflation curve. There
was one recession period and one boom period during the ten years phase. In the recession
period of 2008-2009 the inflation rate of Japan fell below 0% to around -2% and in 2015 the
inflation rate increased significantly and reached over 3%. In 2018, the inflation rate is close to
0%, which is not at all good for an economy because very low inflation rate is actually unhealthy
for a country.
Graph 3: Inflation
Rate of Japan
Source: (Tradingeconomics.com, 2019)

8Economic Analysis of Japan
Low inflation rate reduces the expectation of wage growth and thus the demand for
consumption decreases and a vicious cycle will form and as a result the inflation rate of the
country remains at a low rate. It will thus affect the growth of economy of the country and the
economy of the country continued a slow growth. In Japan the cause of low inflation rate is due
to demand side causes. The aggregate demand of Japan is low because people of the country
consumes less amount of goods and thus the price of the goods does not increases significantly
and thus the inflation rate of the country remained zero bound. The government thus to boost the
inflation rate to the normal level uses expansionary monetary or expansionary fiscal policy
(Eichenbaum, 2019). The expansionary monetary policy that are feasible are cut in cash rate or
bank rate and feasible expansionary fiscal policy is tax rate reduction. However, even after such
a low inflation rate Japan has successfully grows its economy. The low inflation rate of Japan
may seem insignificant traditionally but as per Abenomics the 2% inflation targeting helps to
increase the economic growth of the country even with low inflation rate.
Conclusion
The discussion made above regarding the Japan’s GDP, inflation rate and unemployment
rate of unemployment indicates that in the last decade the country has done good job to achieve
considerable economic growth. The GDP of the country has increases significantly from 2008 to
2018 and the unemployment rate has also declined over the same period of time. Thus, it is
evident that Japan is successful to keep the growth of the economy stable and rising and
unemployment rate falling. It has also been seen that the inflation rate of Japan is lower than 2%
because in Japan the concept of Abenomics is used to move the economy of the country up. The
government of Japan can use expansionary fiscal and monetary policy to correct the fluctuation
in the economy.

9Economic Analysis of Japan

10Economic Analysis of Japan
References
Bernanke, B. S., Laubach, T., Mishkin, F. S., & Posen, A. S. (2018). Inflation targeting: lessons
from the international experience. Princeton University Press.
Boone, B. A., Zenati, M., Hogg, M. E., Steve, J., Moser, A. J., Bartlett, D. L., ... & Zureikat, A.
H. (2015). Assessment of quality outcomes for robotic pancreaticoduodenectomy:
identification of the learning curve. JAMA surgery, 150(5), 416-422.
Eichenbaum, M. S. (2019). Rethinking Fiscal Policy In An Era Of Low Interest Rates.
Foster, L., Grim, C., & Haltiwanger, J. (2016). Reallocation in the Great Recession: cleansing or
not?. Journal of Labor Economics, 34(S1), S293-S331.
Furceri, D., Loungani, P., & Zdzienicka, A. (2018). The effects of monetary policy shocks on
inequality. Journal of International Money and Finance, 85, 168-186.
Garín, J., Lester, R., & Sims, E. (2016). On the desirability of nominal GDP targeting. Journal of
Economic Dynamics and Control, 69, 21-44.
Hall, R. E. (2017). High discounts and high unemployment. American Economic
Review, 107(2), 305-30.
Katz, R. (2015). Japan, the system that soured. Routledge.
Mueller, A. I. (2017). Separations, sorting, and cyclical unemployment. American Economic
Review, 107(7), 2081-2107.
Nolan, B., Roser, M., & Thewissen, S. (2016). GDP per capita versus median household income:
What gives rise to divergence over time? (No. 672). LIS Working Paper Series.

11Economic Analysis of Japan
Quercia, R. G., Pennington-Cross, A., & Tian, C. Y. (2016). Differential impacts of structural
and cyclical unemployment on mortgage default and prepayment. The Journal of Real
Estate Finance and Economics, 53(3), 346-367.
Summa, R., & Serrano, F. (2015). Distribution and Cost-Push inflation in Brazil under inflation
targeting, 1999-2014. Roma: Centro di Ricerche e Documentazione “Piero Sraffa.
Tradingeconomics.com. (2019) Japan Unemployment Rate | 2019 | Data | Chart | Calendar |
Forecast | News . (2019). Retrieved from
https://tradingeconomics.com/japan/unemployment-rate
Tradingeconomics.com. (2019), Japan GDP From Agriculture | 2019 | Data | Chart | Calendar |
Forecast . (2019). Retrieved from https://tradingeconomics.com/japan/gdp-from-
agriculture
Tradingeconomics.com. (2019), Japan Inflation Rate | 2019 | Data | Chart | Calendar | Forecast |
News. (2019).Retrieve 30 September 2019, from
https://tradingeconomics.com/japan/inflation-cpi
Vuillemey, G., & Wasmer, E. (2017). Frictional Unemployment with Stochastic
Bubbles. Available at SSRN 2846302.