Economic Performance of Japan: Real GDP, Unemployment, and Price Level Analysis

This article discusses the economic performance of Japan from 2008 to 2018, focusing on real GDP, unemployment, and price level. It analyzes the trends, government measures, and factors affecting the country's economic growth and stability. The article also provides insights into the major sectors contributing to Japan's GDP and the government's efforts to mitigate the effects of economic recession.

Running head: ECONOMIC PERFORMANCE OF JAPAN
Economic Performance of Japan
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Introduction
Japan is 63rd largest country in the world by area (Cia.gov., 2019). Evidently, it is not
so large a country, even though, nominal GDP wise it is placed at third position in the world.
The economic features of Japan makes it highly developed. The most important sectors in
Japan are service, industry and agriculture. Among these three contribution of agriculture is
the lowest with average total GDP share of 1.31 percent (TheGlobalEconomy.com, 2017).
The constraint that limits the contribution of agriculture in total output is the unavailability of
fertile land. Japan meets its most of the agricultural demand by importing from other
countries and thus it is counted under list of biggest agricultural importers. However, it
produces its own demand for rice. The manufacturing and industrial sector of Japan
contributes 24 percent of the country’s GDP. The sectors are widely spread with different
kinds of specialization that includes consumer electronics, automobile, optical fibres, optical
media, manufacturing of semi-conductors and document copying devices. Service sector
contributes 75 percent of Japan’s GDP and hence it is the largest and most crucial part of the
economy. Retail, real estate, banking, transportation, telecommunication, banking and
tourism are the chief service industries in Japan. Being a manufacturer of various products
Japan has comparative advantage in commodities such as engineering and R&D related
products. Hence, it exports these to other countries. The five major importers of Japan’s
product are Unites States, South Korea, China, Hong Kong and Taiwan. Many companies
such as Sumimoto Mitsui Financial, Toyota Motor, Mitsubishi UFJ Financial and Honda
Motor operates in Japan for its hi-tech infrastructure and rich economy.
Production output performance
The measure of output of a country produced during a certain period in monetary
terms is the GDP of the country (Fioramonti, 2013). The GDP when estimated using current

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year market price then it is termed as nominal GDP and when the estimation is done using a
fixed base year price then it the GDP is called Real GDP. Real GDP gives the measure of
inflation adjusted output of a country.
Figure 1: Real GDP in Japan (2008 – 2018)
(Source: Tradingeconomics.com, 2019)
It is evident from the data shown in figure 1 that Japan experienced a real GDP drop
during 2008 and 2009. Following this recession hit Japan in the quarter of 2008. With the
advent of Global Financial Crisis (GFC) investments in business reduced and there was
negative earnings from net exports (Wang & Whalley, 2017). After GFC, there was economic
restoration and Real GDP increased gradually until 2011 when Thailand was struck by flood.
Other factors such as reduced export volume caused due to low demand in overseas and
appreciation of yen has aggravated the decline in Real GDP. A technical recession occurred
in the economy in the second quarter of 2014 and it sustained for some time. However, after
recovering from the situation the Real GDP has maintained an upward trend until 2018

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Real GDP growth rate
Economic growth of a country is measured with Real GDP growth. A trend of
increasing growth in Real GDP depicts output of a country increases over time that leads to
economic progress (Feldstein, 2017). Growth of Real GDP is measured year wise in
percentage terms.
Figure 2: Trend in real GDP growth rate of Japan (2008 – 2018)
(Source: Tradingeconomics.com, 2019)
In 2008, Japan experienced economic recession causing decline in Real GDP Growth
starting from third quarter of the year. After recovering from the recession, Real GDP grew
significantly until 2011. From 2011, the economy again slowed down and featured declining
growth trend. The fluctuation in the growth indicated oscillating business cycle trend. From
the second quarter of 2014, there was severe economic contraction of 7.3 percent and the
GDP declined at 1.6 percent annual rate.

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Real GDP per capita
Per capita Real GDP determines the average individual income of a country. It is
measured by dividing Real GDP by total population (Ductor & Grechyna, 2015). This gives
apparent estimation of standard of living of a country.
Figure 3: Trend in real GDP per capita (2008 – 2018)
(Source: Tradingeconomics.com, 2019)
Japan records an upward trend in per capita Real GDP except 2008 and 2009. Post
1990 most of the major economies were behind Japan in terms of per capita GDP. It is the
economy with lowest inequality in income and the inequality of the country has not increased
for long.
Government measure to achieve production output performance
From third quarter of 2008, the economy of Japan started to contract with advent of
the recession. During the first quarter of 2009 the economy contracted by 15.2 percent. The
Japan government intervened promptly and supported with 7.2 trillion yen of package to
stimulate the economy such that the production remain steady and sustainable. The aim of the
stimuli is to mitigate the sufferings of the citizens caused due to two consecutive decades of

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stagnation of the economy. The government in April 2009 announced the stimulus economic
plan that includes 15.4 trillion yen stimulus package. In the package there was investment
allocation of 1.9 trillion yen for employment, 1.6 trillion yen for low-carbon oriented
technology and 390 billion yen for subsidies in car. The government of Japan and Bank of
Japan collaboratively carried out fiscal, structural and monetary policy actions to assure
economic growth in the long run. The implementation of structural reforms regarding labor
force and work style was successful and for fiscal policy, the government has emphasised on
quality of expenditure. One of such expenditure is made on infrastructure and promotion of
science and technology.
Unemployment
The percentage of labour that is unemployed out of the total labor force gives the
magnitude of unemployment rate (Pigou, 2013). A labour is considered as unemployed only
if it participates in job search. Further unemployment can be categorised into three major
kinds of unemployment namely cyclical, structural and frictional unemployment.
The unemployment that occurs due to shifting of workers from one occupation to another is
called frictional unemployment (Carrère, Grujovic & Robert-Nicoud, 2015). It includes the
labours that willingly leave a job to find another and one who stay unemployed during the
period of transition between jobs.
The unemployment that is generated when there is difference in skill of worker and
employers’ requirement is known as structural unemployment. The main causes of structural
unemployment are demographic changes, introduction of new technology and industrial
reformation.
The temporary kind of unemployment that occurs due to fluctuations in business cycle
is called cyclical unemployment (Diamond, 2013). This mainly happens due to contraction in

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economy occurring due to fall in aggregate. However, unemployment declines as economy
recovers from the adverse condition.
Types of Unemployment in Japan
Structural unemployment occurred in Japan’s labor market due to economic structural
changes. The major structural changes of the economy were increase in aged labor force,
increase in temporary labourers, occupational and industrial changes and other similar
alterations. Cyclical unemployment is prominent during economic recession, as evident from
the recession during 2008 and 2009.
Figure 4: Unemployment trend in Japan (2008 – 2018)
(Source: Tradingeconomics.com, 2019)
In figure 4, the trend of unemployment rate in Japan from 2008 to 2018 can be
observed. The significant fall in unemployment rate during 2008 and 2009 was due the
economic recession. During February 2008 and March 2009, unemployment rate increased
from 4.4 percent to 4.8 percent. The unemployment rate decreased gradually since then and
reached below 3 percent in 2018. The ration between offered jobs and number of applicants

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in Japan stayed the same depicting that the labor market is in tight condition. The exiting
ratio between number of available jobs to number of applicants is 143:100. The major sectors
that contributed to job growth in Japan are construction, information technology, retail and
wholesale trade.
Government measure to overcome employment
The implementation of placement programmes is the key step for providing jobs and
employment support to all the people seeking jobs including single mothers, youth, elderly
and disabled. Under the government of Japan, the Public Employment Service Office designs
the Employment Insurance System, job placement programmes and other unemployment
measures effectively. To empower women in labor force the government of Japan has
adopted various measures that include improving recruitment situation/ promotion for women
and supporting agents to achieve the decided objectives by developing effective action plan.
The companies in Japan received support from the government such that the companies can
design work policies that allow women to work and raise children simultaneously. The
government increased spending in Labour Mobility Support Subsidy in 2014 (G20.org.tr,
2014). Under the programme, the government targets small and medium enterprises along
with large enterprises. The government is providing monetary assistance to the employees
too. With objective of improving labour quality, the government made huge investments in
vocational training, higher education, apprentices and school education.
Price level analysis
The factor that shares inter-relationship with price level is inflation. Inflation of an
economy is given by the change in price level of final goods and services over time. Increase
in price level decreases value of money and thereby reduces purchasing power. The increase
in demand or fall in supply causes price level of an economy to increase collectively (Romer,

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2018). Demand driven rise is price level is demand-pull inflation and supply driven rise in
price level is cost-push inflation.
In an economy when consumers demand more causing aggregate demand to rise
above aggregate supply, the sellers then failing to meet the excess demand increases the price
of products causing price level to rise and this results into demand pull inflation.
Decrease in supply of an economy due to rise in cost of production or any other
factors given a constant demand then the mismatch in demand and supply leads to increase in
price level causing inflation. Thus, any inflation that causes due to fall in supply of an
economy is called cost-push inflation.
Figure 5: Inflation trend in Japan (2008 – 2018)
(Source: Tradingeconomics.com, 2019)
The trend of inflation in Japan can be observed in the figure given above. In 2008 and
2009, recession occurred worldwide. It is evident from the figure that there was a sharp
decline in inflation during this period in Japan. The economy suffered from deflation rather
negative inflation that leads to shrinkage in business and fall in net exports. With

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improvement in economic condition, price level steadily improved. However, the inflation
rate in Japan remain low due to low expectation in growth, low interest rate, safe play by
private banks, people’s attitude toward price increase and weak growth expectation. After
recovery from technical recession in 2014, price level increases with increase in output and
improvement in long run expected inflation rate.
Government measure to achieve stable price
To attain sustainable economic development the price level of the nation needs to be
stable. Accordingly, the Bank of Japan Act state that the central bank should formulate
monetary policy in such a way that it ensures price stability. Bank of Japan has set inflation
target of 2 percent to attain price stability (Boj.or.jp 2013). Inflation overshooting
commitments and Yield curve control are the two components of the policy that the Bank of
Japan has taken to achieve stability in price level.
Through “yield curve control”, the central bank tries to reduce the short and long run
interest rate. It is evident from the economic experience that maintaining negative interest on
government bond and current account balance helps in yield control curve effectively. The
central bank assured to increase in monetary base steadily until percentage increase in
consumer price index surpasses targeted 2 percent inflation rate and endure the margin.
Conclusion
From the above discussion regarding economic performance of Japan from 2008 to
2018, it is found that the country has faced three economic recession during the considered
period. The three economic recession occurred in Japan in 2008, 2011 and 2014. In the said
years, the economy was in dwindling condition. To recover from the adverse conditions the
government of Japan formulated and implemented various stimulatory packages and other
effective steps. The unemployment rate in Japan declined steadily due to availability of

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sufficient jobs in different sectors. Alongside, the per capita GDP has also increased steadily.
The improvement in stability of price level has contributed in pulling up the negative
inflation rate that had affected the economy adversely for a decade and fuelled it to grow
steadily and positively.
References
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Monetary Easing with Yield Curve Control" : 日日日日 Bank of Japan. Retrieved from
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Diamond, P. (2013). Cyclical unemployment, structural unemployment. IMF Economic
Review, 61(3), 410-455.
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G20.org.tr. (2014). Retrieved from
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