Japan's Economy: Production Output, GDP, and Labor Market Analysis

Japan is the third largest economy in the world with a strong work ethic and advanced technology. The country heavily relies on imported raw materials and fuels due to the lack of arable land. Japan's economy faced a severe recession during the global financial crisis, but the government's stimulus spending helped the recovery. The Abenomics policy aims to bring Japan out of deflationary recession through fiscal stimulus, unorthodox monetary policy, and structural reforms. Japan's unemployment rate has gradually declined, and the government provides job training courses and temporary job opportunities to counter unemployment caused by the recession.

Japan
Japan – the “Land of the Rising Sun” – a nation in East Asia formed by 6,852
islands in the Pacific Ocean. Japan got the third largest economy in the world
after the United States of America and China and the fifth largest importer and
exporter in the world. Due to the successes of the advanced car and consumer
electronics industries propelled Japan's rapid post-war expansion (Japan in brief,
n.d.). According to the report of Central Intelligence Agency, the GDP
composition per by sector is consists of Agriculture (1%), Industry (29.7%) and
Services (69.3%) (The World Factbook: JAPAN, 2018).
Main product produced by Japan (Workman, 2018):
1. Vehicles
2. Machinery
3. Electrical machinery
4. Chemical Product
5. Iron, steel
Major Export country (The World Factbook: JAPAN, 2018):
1. United State
2. China
3. South Korea
4. Hong Kong
5. Thailand
Example of Major Company:
1. Toyota Motor
2. Honda Moto
3. Nippon Telegraph & Tel
4. Canon
5. Softbank

Overview
In the cooperation between government-industry, strong work ethic, mastery
develops in high-tech and smaller allocation in defense (1% of GDP) give Japan
an opportunity to develop a technologically advanced economy opportunity. Due
to the lack of arable land Japan's gradually reliant on imported raw material and
fuels, and highly subsidized and preserved on their limited agricultural industry.
They import around 60% of its food and self-sufficient in rice. Japan also had one
of the largest fishing fleets in the world and has about 15% of the global catch.
Although the financial sector wasn't severely imperiled to subprime mortgages
their derivative instruments and weathered the initial effect of the recent global
loan crisis, the acute decline on business investment and global need for Japan's
exportation during late 2008 bring Japan further into depression. The stimulus
spending by the government helped the recovery of the economy in late 2009
and 2010, but they also foresaw the GDP growth in 2011 would slow down.
Former Prime Minister Kan suggested to opening the agricultural and services
sector to strengthen the competitiveness to overseas and boost exporting
through free-trade agreements. The reasons cause the complexity of Japan's
economy are the massive government debts, which is about 200% of GDP,
persistent deflation and an aging and shrinking population (Japan’s Economy,
n.d.).

Production Output Performance Analysis
Real Gross Domestic Product (GDP)
It is an inflation-adjusted measurement of economic output to present the value
of goods and services produced by an economy in a given year. Real GDP shows
the fluctuations of price level and provide a more reliable figure of economic
growth.
Japan’s GDP from 2008 to 2017
Sources: https://tradingeconomics.com/japan/gdp-constant-prices
According to the graph, the GDP of Japan from 2008 to 2017 went ups and downs
but still increases gradually.
During 2008, Japan faced its deepest economic crisis since world war II - The
Great Recession. The global slowdown on demand for Japanese exports has
crushed its crucial pillar of the world's number two economy, and it declines in
the rate of 12.7% annually (Japan faces worst economic crisis since WWII, 2009).
During the earlier stages of the crisis, it seemed that Japan could avoid the
serious recession as it had a relatively small financial sector, but still, it became
the most serious amongst OECD countries regarding GDP growth rates due to
weak export growth and sharp cuts in corporate spending during the economic
recession. As Japan’s economy has been reliant on export for growth, especially
to the world’s largest economy, the USA, and the decline in import demand of
the US had sent shockwaves to those export-dependent countries (Wakasugi,
2009).
GDP increased by a healthy 3% during 2010, it was the fastest growth in 20
years. On 2011 due to the Tōhoku earthquake and tsunami it caused another
economic recession in Japan in 2011, as a result of the chaos caused by the
Fukushima nuclear plant or damage from the natural disaster, factories across
the nation forced to shut down or delayed their output. Furthermore, Japan’s
invest-and-export-at-all-costs economic system had been developed decades
rapidly, bureaucrats no longer interested in the development of the system.
Therefore, policymakers are not willing to open up for a more competitive
system to foster entrepreneurship or boost consumer spending even the

domestic economy is stunted, suffer from lack of investment, low standard
services, low productivity and high costs (Schuman, 2011).
Japan’s economy was rising, but due to the Senkaku Island dispute during 2012,
it slightly went down but still keep growing. After the ragged rise and fall from
2012 and 2013, on the mid-2013 Japan's economy finally went up slowly.
Unfortunately, it sank into recession again in the fourth quarter of 2015 due to
the sharp fall in inventories. Companies rather to building up shares and cutting
down their inventories (Harding, 2015).
The economic expansion during 2017 mostly came from aboard. The unusually
enthusiastic spending by Japanese consumers on April to June and the main
driver of growth from July to September was foreign trade. The central to Japan's
recovery has been exports part of it helped by the weak yen. The government’s
stimulus plan-Abenomics had requested the central bank to invest a massive
amount of money in the financial system, as a weaker yen make Japanese
products more attractive to overseas buyers. As for the domestic aspect, the
economy was weaker. According to the data, exports grew by 6% annually but
household consumption fell by 1.9%. On the other hand, business investment
had increased a healthy 1% it’s a sign that organization expects Japan's growth
streak will last longer (Soble, 2017).
Real GDP Growth Rate
It’s to measures the speed of the economy growth by comparing a quarter of the
country’s GDP to the previous quarter. GDP growth rate is driven by four
components of GDP – personal consumption, business investment, government
spending and net trade.
Japan’s Real GDP Growth Rate from 2008 to 2017
Sources: https://tradingeconomics.com/japan/gdp-growth-annual
The above figure describes trend growth rate in GDP of Japan. After the downfall in
GDP growth rate during in 2009 with growth rate being negative economic growth recovered
and reached to a level close to 4%. The economic growth in recent years has been contracted
mainly due to a fall in household consumption which more than offset business investment.

(tradingeconomics.com, 2018). In the last two years’ economic growth lies between 0 and 2
percent.
GDP per Capita
It is a measurement of a country's total economic output by dividing the
country's GDP by its total population. It's the best way to analyze the standard of
living of a country over time.
Japan’s GDP Per Capita from 2008 to 2017
Sources: https://tradingeconomics.com/japan/gdp-per-capita
Per capita GDP of Japan shows a gradual increase in the last ten years. Per capita
GDP experienced a sudden fall in 2009 due to global financial crisis. Average income fell to
42724.8 USD in 2009 from 45165.8 USD in 2008. Per capita GDP in Japan in 2017 was
recorded as 49556.93 US dollar. The per capita GDP of Japan is accounted to be 384 percent
of world’s average per capita GDP.The highest per capita GDP has been recorded in 2017.
(tradingeconomics.com, 2018).
Government's measures
Abenomic
Abenomics is a series of radical monetary and fiscal policies, blend with the
structural reforms aimed to bring Japan out of the deflationary recession.
These are the "three arrows" of the policy:
 Fiscal Stimulus includes short-term fiscal stimulus, by increasing
public works investment and government consumption to restore
economic growth within a short period. Abe's massive stimulus package is
the country's second-largest, which focused on public work developing.
 Unorthodox Monetary Policy It aim to lower real interest rate as
it has a significant side effect of weaken the yen. A weaker yen may be a
righteous way for the Japanese economy.

First and foremost, it encourages exports as other currencies can afford
more Japanese-produce products which will boost corporate earnings and
increased business investment. A weaker yen also provides fuel for stocks
in the same time.
Furthermore, with higher share prices, Companies are easier to raise fund
and more likely to invest in businesses expansion
For households, by increasing the value of shareholding and indicate the
health of the economy will boost the enthusiasm of spending
 Lastly, the Structural Reform plans- including cutting business
regulations, expanding labor market and agricultural sector, reduce
companies’ taxes and increase labor diversity to bring back Japan's
competitiveness.
"The key to improving medium-term growth potential," economists Nomura
said.
It will be hard for Japan to expand the economy in the medium term just
through fiscal spending due to the government debs are extended to more
than 200% of GDP, unless economic growth can be enhanced by the
governments' growth strategy otherwise any resultant move of deflation is
short-lived. As the outcomes of bold monetary easing are mainly relaid by
the expectations of the financial and capital market. (Boesler 2013)
Government's measures
During the year 2016, Shinō Abe launched a new ¥4.6tn ($45bn) stimulus to
drive up the struggling Japanese economy to shift Japan from the front of global
austerity to the looser fiscal policy. It combines monetary and fiscal stimulus, as
Japan had been struggled with weak consumption and impediment exports from
stronger yen, which return to the basics of the Abenomics. The core of the
package is to help low-income pensioners and use eight years of soft
government loans to bring up the completion of the maglev train line from Tokyo
to Osaka (Harding, 2016).
The Japanese government is also try to improve their economy and stop their
white-collar worker from working themselves to death by using a single phase-
Hatarakikata kaikaku or “work style reform”. It's promoted as a keyword to
reduce overtime, enhanced work-life balance and make better use of the skills of
female and elderly workers.
On the instruction of the government, many businesses are implementing
hatarakikata kaikaku to reduce overtime by force employees to leave earlier,
they even turn off the lights at specific times or require overtime permits. Yet
they also allow employees to telework, promoting ‘womenomics’ and offer
support to working parents such as reduce working hours. (Kopp, 2017).
Labour Market Analysis
Unemployment Rates
It is the percentage of the labor force that are unemployed by dividing the
number of people unemployed by labor force.

Type of Unemployment:
1. Frictional Unemployment
Unemployment that arises because of workers who are search for a new
job.
2. Structural Unemployment
Happened when demand increases for some skill while another skill are no
longer in demand.
3. Cyclical Unemployment
Emerge due to the downturn in the overall of business cycle
Types of Unemployment in Japan
Structural unemployment
The manufacturing industry in Japan experienced a contraction in
employment opportunity due to shift of production units to overseas and
increasing dependency on imported items from other Asian countries. In contrast
to job losses in manufacturing sector, nursing industry suffers from a shortage of
labour. This kind of mismatch results in structural unemployment (Lin &
Miyamoto, 2012).
Cyclical Unemployment
The cyclical unemployment in Japan caused from the hit of global
recession and different natural disaster like Tsunami and others. During this
time, large number of people become unemployed as employer seeks to reduce
their work force to cut down wage costs.
Frictional Unemployment
Frictional unemployment is not a major problem in Japan because of
different government measures. Government provides opportunities for job
recruitment to new graduates (Chen et al., 2012). In Japan, people hardly have any
attitude towards shifting their jobs which help to minimize frictional
unemployment in the economy.
Japan’s Unemployment Rates from 2008 to 2017
Sources: https://tradingeconomics.com/japan/unemployment-rate

As indicated from the trend unemployment rate Japan experienced an
overtime decline in the unemployment rate. The hit of global recession
aggravated unemployment problem in Japan with rate of unemployment
increased to 5.05 percent in the year 2009 and 2010. The recorded
unemployment rate again declined from 2010. Unemployment varied between
5.05 to 4.07 between 2010 and 2013. Lowest unemployment is in the year 2018
and unemployment rate reached to the level close to 2 percent (Kakinaka &
Miyamoto, 2012).
Government's measures
Before 2008, Japan hold the position of one of the largest economy in the world.
During global financial crisis, the export sector of Japan experienced a break down. Export
being one of the major support of the economy, slow-down in export sector resulted in an
economy wide recession and cyclical unemployment. In order to improve labour market
condition government provided different job training courses to those searching for jobs with
special attention given on students in colleges and universities (Campbell, 2014). In order to
counter unemployment caused from the hit of recession, the labour ministry held conference
to promote employment through job support program to victim of the disaster. Government
also has created temporary job opportunities in the field of medical service, welfare,
reconstruction of public facilities and water supply.
Price Level Analysis
Inflation Rates
Japan’s Inflation Rates from 2008 to 2017
Sources: https://tradingeconomics.com/japan/inflation-cpi
The above figure demonstrates the trend inflation rate in Japan from 2008
to 2017. The inflation rate was negative between 2009 and 2010 as the country
experienced a recession during this time. The price level gradually recovered
from 2011 onwards. The price level strengthened mainly due to Yen depreciation
and higher price of gasoline. Inflation during this time reached close to 4%.
Inflation then began to fall due to decrease in prices of major categories in
affecting the measured consumer price index. The food price grew at a much

slower pace due to decline in cost of cost of fish, seafood, eggs and other dairy
products, fresh food and fresh fruits. Cost increases at a relatively faster pace for
transport, communication, culture and recreation, medical care, health care and
education. In contrast, the cost of footwear and clothes remain almost flat (De
Michelis & Iacoviello, 2016). Following the inflation targeting policy of Bank of
Japan inflation in recent years has fluctuated between 0 to 2 percent.
Cause of inflation
The two primary cause of inflation include demand pull and cost push. The former is
caused due to an increase in aggregate demand while the latter is caused by an increase in
cost. Japan has experienced a long period of deflation, a situation where price level declines
gradually. The deflationary state of Japan is explained by the decrease in the supply of
money, excess supply of goods in combination with a decline in demand and a fall in money
demand. Deflation is again of two types Benign deflation and Malign deflation (Fuhrer,
Olivei & Tootell, 2012). The first is when price declines due to increase in productive
efficiency that result in an increase in aggregate supply. The malign deflation is caused due to
deficiency of aggregate demand. Japan experienced Malign inflation due to ageing population
causing decline in work force and decrease in money spent on goods and services.
Government's measures
Attaining a stable price level is one of the major goal of Bank of Japan. Stability in
the price level is important as it builds the foundation of economic activity of a nation. Bank
of Japan undertakes several measures to maintain a stable price. At September 2016, BOJ
conducted an assessment on monetary policy framework made of quantitative and qualitative
monetary easing. After that, bank introduced a new measure of which combines both
Quantity and Qualitative Monetary Easing and yield curve control. BOJ introduced the policy
of QQE in 2013 which made an improvement in price level through a decline in the real
interest rate (boj.or.jp, 2018). The policy of yield control curve causes a decline in real
interest rate through controlling the short term and long term interest rate in the economy.
Bank designs a policy of inflation overtook under which it continues to increase the monetary
base until the yearly inflation rate reached to the targeted level of 2%.
Conclusion
The paper briefly discusses economic performance of Japan in the past ten years.
Output performances are evaluated on the basis of real GDP, growth in real GDP and per
capita real GDP. The economy of Japan has experienced several years of recessionary
pressure. Economic growth though recovered after global financial crisis but the economy
grew at a moderate rate in the last few years. Under the framework of Abenomics policies
favourable to economic growth has been undertaken. Coming to labour market performance,
the economy mainly suffered from structural and cyclical unemployment. Because of
government’s supportive programs to new graduates, frictional unemployment is not a major
problem for Japan. After years of deflationary pressure, the economy is now in a path of [rice
stability due to correct design of monetary policy by Bank of Japan.

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