Comprehensive Economic Analysis of Japan's Performance: 2006-2016

This report provides a comprehensive analysis of Japan's economic performance between 2006 and 2016, examining key macroeconomic indicators. It begins with an overview of the Japanese economy, highlighting its position in the world and its key sectors. The report then delves into production output performance, analyzing GDP, GDP growth rate, and GDP per capita, with comparisons to South Korea. The analysis includes discussions of the government's measures, particularly the 'Abenomics' policies, aimed at stimulating economic growth. The report further explores the labor market, examining unemployment trends and the government's responses to unemployment, including fiscal stimulus and initiatives to increase female employment. Finally, the report investigates price level analysis, focusing on inflation trends and the causes of deflation in Japan, including the impact of the global financial crisis and the 'lost decade.' The analysis draws on data from the World Bank and other sources, providing a detailed understanding of the economic challenges and developments in Japan during this period.

Running head: ECONOMICS
Economic Performance of Japan: 2006 - 2016
Name of the Student:
Name of the University:
Author note:

ECONOMICS 1
1.0 Introduction
Japan is a highly developed economy of Asia as well as in the world. The
economy of Japan is a free market economy, which is 3rd biggest in the world in nominal
GDP and 4rth largest in purchasing power parity (PPP). It is also the 2nd biggest among
the most developed economies of the world (Felbermayr et al., 2017). In 2016, the
country’s GDP was 4.93 trillion a current USD, with GDP per capita being 38794.33 at
current USD (World Bank, 2019). Japan is a nation with most innovative techniques in
all types of application in personal and professional life of individuals. It has the largest
industry in electronic goods and filling of patents. Moreover, Japan holds the 3rd rank
among the biggest automobile manufacturing countries (Sawe, 2019). It is also the
largest creditor of the world with leading public debt ratio. Top 5 products and/or
services produced by the economy are automobiles, electronic goods, semiconductors,
petrochemicals and iron and steel products. The biggest industries of the Japanese
economy are manufacturing, agriculture, fishing and tourism. The service sector
contributes the maximum amount in the GDP with 71.4%, followed by the industry
sector with 27.5% and agriculture with 1.2% (Sawe, 2019). The rate of unemployment is
2.9%. As of 2018, Japan is 4th biggest exporter with exports worth of $728 billion and 4th
biggest importer with imports worth of $632 billion in the global economy. The top 5
export markets of Japan are USA (20%), China (17.55%), South Korea (7.1%), Hong
Kong (5.6%) and Thailand (4.5%). The major exports of the country consists of
automobiles, motor parts, power generating machinery, electronic goods, iron and steel
products, plastic materials and semiconductors (Sawe, 2019). According to a report by
Phillpott (2019), the top 5 biggest organizations of Japan are Toyota Motor Corporation
(biggest car manufacturer of Japan), SoftBank Group (conglomerate with businesses in
telecommunications, finance, e-commerce, media, and technology), Mitsubishi UFJ
Financial Group (banking and finance), Nippon Telegraph and Telephone
(Telecommunication Company) and Japan Post Holdings (conglomerate with
businesses in postal service, banking, logistics and insurance). This essay will highlight
the production output performance analysis, labor market analysis and price level

2ECONOMICS
analysis of Japan along with a discussion on the government measures taken to
address the situations.
2.0 Production Output Performance Analysis
2.1 GDP
GDP or Gross Domestic Product is referred to the monetary value of the total
output produced within the geographical boundary of a nation in a given time period,
mostly a financial year (Pindyck & Rubinfeld, 2015). It is the best measure of a country’s
economic health. Japan has been experiencing high GDP for almost a decade due to
advanced technology and high level manufacturing and within 2006 and 2016, it
achieved highest GDP of 6.2 trillion USD in 2012 while in 2015, it experienced lowest
GDP of 4.39 trillion USD (World Bank, 2019).
2.2 GDP Growth Rate
GDP growth rate is the measure of the pace of movement of an economy. In
other words, the acceleration of an economy is measured by the growth rate of GDP. It
is derived by comparing the growth of the economy per quarter (Pindyck & Rubinfeld,
2015). The growth rate of GDP is dependent on the personal consumption, captured by
retail sales, business investment, especially in inventory and construction, government
spending, and the net trade amount. Japan has experienced a fluctuating GDP growth
rate between 2006 and 2016, as shown in the graph below.

3ECONOMICS
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
1.42 1.65
-1.09
-5.42
4.19
-0.12
1.50 2.00
0.37
1.22
0.61
GDP Growth rate of Japan(%),
2006-2016
Figure 1: GDP growth rate of Japan (2006-2016)
(Source: World Bank, 2019)
It is observed that economy of Japan experienced a huge fall during 2008-09
when the growth rate became highly negative. During the global financial crisis, the
export of Japan shrank 26% and the consumers and businesses went for spending
cuts. Business investment fell by 10.4% and consumer expenditure fell by 1.1%. There
was wage cut also followed by increasing unemployment (McCurry, 2009). However,
the country bounced back in 2010 with a sharp increase in the GDP growth rate due to
strong capital spending. However, the growth fell again 2011 due to the massive impact
of earthquake and tsunami and after recovery in the subsequent years, it has been
experiencing a positive and moderate growth rate.
2.3 GDP Per Capita
GDP per capita represents the economic production accounting for the number
of people. The GDP of a nation is divided by the total population and that gives the GDP
per capita (Pindyck & Rubinfeld, 2015). This is the most appropriate measure for the
standard of living of the country. According to Oecdbetterlifeindex.org (2019), the GDP
per capita of Japan is quite high and thus, the standard of living is also high. Tokyo is

4ECONOMICS
the most expensive city of the world and it implies that the cost of living in Japan is
extremely high (Sakai, Kawamura & Hyodo, 2015).
When compared the GDP per capita of Japan with that of South Korea, it can be
observed that it is quite low for South Korea between 2006 and 2016.
Japan Vs. South Korea: GDP per capita (current US$)
Japan Korea, Rep.
2006 35433.99 20888.38
2007 35275.23 23060.71
2008 39339.30 20430.64
2009 40855.18 18291.92
2010 44507.68 22086.95
2011 48168.00 24079.79
2012 48603.48 24358.78
2013 40454.45 25890.02
2014 38109.41 27811.37
2015 34524.47 27105.08
2016 38794.33 27608.25
(Source: World Bank, 2019)

5ECONOMICS
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0
10000
20000
30000
40000
50000
60000
Japan Vs South Korea, Per Capita GDP, 2006-2016
Japan GDP per capita (current US$) Korea, Rep. GDP per capita (current US$)
Figure 2: Japan Vs South Korea, Per Capita GDP, 2006-2016
(Source: World Bank, 2019)
From the above chart, it can be observed that both the countries had fluctuating
GDP per capita, and both fell during the global financial crisis in 2008-09. It increased
during 2012, when the GDP of the economies increased, although the per capita GDP
of Japan is always considerably higher than that in South Korea due to advanced
technology, higher capital investment, and growth of production sector. However, GDP
per capita for South Korea increased substantially 2014 onwards, while Japan’s per
capita GDP is lower than that in 2012.
2.4 Government Measure – GDP
The Prime Minister of Japan, Mr. Shinzo Abe, contributed significantly in the
growth of the Japanese economy. Abe introduced 3 arrows, that is, directions for the
economy, namely, monetary easing, structural reforms and fiscal stimulus and his
economic policies are termed as Abenomics (JapanGov, 2019). The goal was to boost
the internal demand and GDP and increase the inflation to 2%. The structural policies
aimed at increasing local and global competition, bringing reforms to the labor market
and increasing the trade partnerships (cfr.org, 2018). Abe introduced measures for
economic recovery by increasing government spending of 20.2 trillion Yen, out of which

6ECONOMICS
10.3 trillion was direct government spending. Infrastructure was developed and
monetary policy was eased out to stimulate the GDP (JapanGov, 2019).
3.0 Labour Market Analysis
3.1 Types of Unemployment
Unemployment is that state of an economy, in which an individual is willing to
work but cannot find or do not have a job. Rate of unemployment is the measure of
unemployment, which is a percentage of unemployed people divided by total population
(Ezzy, 2017). Unemployment is of three types, structural, cyclical and frictional.
Structural unemployment emerges from the structural changes in an economy,
such as, change of technologies. Some people cannot adapt and leave jobs, while
some lose their jobs as they are unable to learn new technology and thus, structural
unemployment is generated. Cyclical unemployment occurs with economic cycle, that
is, when there is contraction, the market demand falls, and unemployment increases,
and the opposite happens in case of economic expansion. Lastly, frictional
unemployment represents the mismatch between the job requirement and skills and
knowledge of the potential employees. Such unemployment always exists to a certain
extent in all the economies (Murtin & Robin, 2018). Japan has faced structural
unemployment over the years due to the structural reforms introduced by the
government.

7ECONOMICS
3.2 Unemployment Trend
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0.0 1.0 2.0 3.0 4.0 5.0 6.0
4.1
3.9
4.0
5.1
5.1
4.5
4.3
4.0
3.6
3.4
3.1
Unemployment trend in Japan (%),
2006-2016
Figure 3: Unemployment trend in Japan (%), 2006-2016
(Source: World Bank, 2019)
Japan has the lowest unemployment rate among all the OECD countries (Kondo,
2015). In the years between 2006 and 2016, Japan has experienced a positive and
moderate unemployment. During 2009-10, the rate of unemployment was highest and
reached 5.1% when the economy shrank as a resultant effect of global financial crisis.
2011 onwards, the level of unemployment decreased and it was lowest in 2016 at 3.1%.
Growth in the manufacturing and technology sectors have contributed in increasing
number of jobs in Japan resulting in lower unemployment rate. Along with that, shrinking
labor force, and shortage of skilled and unskilled workers in the healthcare, hospitality
and construction industry are also reasons for lower unemployment in Japan
(japantimes.co.jp, 2016).
3.3 Government Measures – Unemployment
Shinzo Abe has taken measures to tighten the labor market through fiscal
stimulus and that has lowered the unemployment rate to the lowest among all the
OECD countries. The direct government spending of 10.3 trillion Yen on public works,
small businesses and in military helped to boost the employment. Increase in the

8ECONOMICS
spending helped to create demand in the economy and that reduced the level of
unemployment. Abe also introduced “womenomics” initiative in 2013 and that surged
the female employment to 70.1% in 2015 (Sposato, 2015). Shrinking working age
population is a great challenge for Japan and increasing women participation in the
labor force has mitigated the impact of the issue. Moreover, the companies adopted
capitalism and introduced two types of development, performance related pay and non-
regular employment, for example, temporary, part-time, and hiring through the HR
agencies to reduce the level of unemployment (JapanGov, 2019).
4.0 Price Level Analysis
4.1 Inflation Trend
Inflation is referred to as the increase in the overall price level of an economy
(Pindyck & Rubinfeld, 2015). It is measured by the rate of fluctuations in the level of
price in the economy over time. As seen from the chart below, it can be said that the
Japanese economy mostly experienced negative inflation between 2006 and 2016.
Rate of inflation reached 2.8% in 2014 while it was -1.4% in 2009. The economy has
been facing the challenge of long standing deflation. The price level rose in 2012 after
the Abe government took over.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
0.2 0.1
1.4
-1.4
-0.7
-0.3 -0.1
0.3
2.8
0.8
-0.1
Japan Infl ati on, consume r prices (annual %),
2006-2016

9ECONOMICS
Figure 4: Japan Inflation, consumer prices (annual %), 2006-2016
(Source: World Bank, 2019)
4.2 Causes of Deflation
The long phase of deflation in the Japanese economy can be attributed to many
factors. Overheating of the Japanese economy and the rise in the asset prices during
the end of 1980s did not result in inflation. Bank of Japan did not increase their interest
rate until May 1989 and in the early 1990s, when the bubble burst, the economy moved
into gradual deflation. Except for 1.4% inflation in 2008, the inflation in the economy of
Japan did not enter the positive territory even though the food prices and energy prices
increased globally (Carvalho & Ferrero, 2014). One of the major reasons for deflation
was the negative output gap for a long period of time, 1992-2003, known as the lost
decade. Various demand shocks originating from the Asian financial crisis in 1997 and
the burst of the dot-com bubble in 2000 had contributed in the poor performance of the
economy. According to Yoshino, Taghizadeh-Hesary & Miyamoto (2017), negative
output gap originated from the decline in the natural interest rate, and policies by BoJ
affected the expectation of inflation to fall further. Wide gap between the Japanese Yen
and other currencies also contributed in falling inflation expectations. During late 1990s
and early 2000s, the differences between prices narrowed due to different
deregulations, such as, change in the zoning regulations for the large retailers. Along
with that, the real equilibrium rate of interest, coupled with a shrinking working age
population and fall in potential output, also contributed in deflation in Japan. The low
rate of interest prevented the government to take monetary policies to stabilize
production around the potential level. Furthermore, removal of the custom barriers,
making the Japanese goods and services markets more competitive and cheaper
imports from the emerging economies of Asia and appreciation of Yen against USD and
other major currencies also led to long period of deflation in Japan (Shirai, 2017).
4.3 Government Measures – Inflation
Bank of Japan took a ‘price stability goal’ in 2012 for inflation targeting. In this
goal, the BoJ targeted to achieve price stability of 2%. The measures helped the

10ECONOMICS
inflation to reach 2.8% in 2014. However, it again decreased in 2015 and 2016,
resulting in deflation. For achieving price stability, BoJ again introduced two measures,
yield curve control and inflation-overshooting commitment. The economic activities and
prices were expected to improve by decreasing real interest rates in these years
through the control of short and long term interest rates, and fixed rate purchase
operations (Boj.or.jp, 2017).
5.0 Conclusion
From the above discussion it can be concluded that although the Japanese
economy has been facing certain challenges such as bad debts, deflation, insufficient
natural resources, lack of land resulting in inadequate agricultural production and high
imports, and aged workforce raising concern about the future, yet the economy is
extremely developed and one of the biggest economies of the world. The introduction of
Abenomics has contributed majorly in the growth of Japan by stimulating production,
domestic demand, employment level and favorable monetary and fiscal policies.
However, deflation is still one of the major issues of Japan, for which the government
has introduced measures like cut in real interest rates and price stability target of 2%.

11ECONOMICS
References
Boj.or.jp. (2017). "Price Stability Target" of 2 Percent and "Quantitative and Qualitative
Monetary Easing with Yield Curve Control" : 日日日日 Bank of Japan. Retrieved 21
September 2019, from https://www.boj.or.jp/en/mopo/outline/qqe.htm/
Carvalho, C., & Ferrero, A. (2014). What Explains Japan’s Persistent
Deflation?. Manuscript, University of Oxford, August.
cfr.org. (2018). Abenomics and the Japanese Economy. Retrieved 21 September 2019,
from https://www.cfr.org/backgrounder/abenomics-and-japanese-economy
Ezzy, D. (2017). Narrating unemployment. Routledge.
Felbermayr, G., Kimura, F., Okubo, T., Steininger, M., & Yalcin, E. (2017). On the
Economics of an EU-Japan Free Trade Agreement (No. 86). ifo
Forschungsberichte.
JapanGov. (2019). ABENOMICS | The Government of Japan. Retrieved 21 September
2019, from https://www.japan.go.jp/abenomics/index.html
japantimes.co.jp. (2016). Japan's plunging jobless rate is due to aging, not Abenomics |
The Japan Times. Retrieved 21 September 2019, from
https://www.japantimes.co.jp/news/2016/08/10/business/economy-business/
japans-plunging-jobless-rate-due-aging-not-abenomics/#.XYS8cy4zbIU
Kondo, K. (2015). Spatial persistence of Japanese unemployment rates. Japan and the
World Economy, 36, 113-122.
McCurry, J. (2009). Japan suffers record fall in GDP. Retrieved 21 September 2019,
from https://www.theguardian.com/business/2009/may/20/japan-economy-gdp-
fall
Murtin, F., & Robin, J. M. (2018). Labor market reforms and unemployment
dynamics. Labour Economics, 50, 3-19.