Today Japan is considered as a technologically advanced country. Its sound technology base help the nation to develop rapidly. In the past seventy years the country has made remarkable progress in growth and development perspective. The country possesses a strong manufacturing and service sector. These two sectors are two main pillars of the economy. External sector in Japan is also string enough to support the growth path of the nation. Present paper has made a brief analysis on how the economy in Japan has performed in the last few years. Evaluation has been made on overall production performance of the economy. In addition inflation and unemployment trend over the past several years has been taken for consideration.
Production Output Performance Analysis
Gross domestic product or GDP is an aggregate measure of country’s overall production or output. It is the monetary values of all goods and services produced in the economy in a particular economy. To calculate the values of goods and service in monetary terms either current market prices or base year price are used. The former is called nominal GDP while the latter is known as real GDP (Tachibanaki, 2016).
Figure 1: Yearly GDP values Japan
Gross domestic product in Japan recorded as 4939.38 billion USD in the year 2016. GDP records its highest value in 2012. Total values of domestic goods and services in that year was 6203.2 billion. Japan accounts almost 7.97% of world GDP. The average national income in the last 40 years in Japan is 2656.84 billion USD. The lowest value recorded in 1960. From then GDP is more or less increasing in Japan as shown by the statistics.
GDP growth rate
Growth in GDP measures the output growth in the economy. Growth output expresses the change in GDP between two consecutive years as a percentage of the first year. Is is also considered as economy’s growth rate as it measures the growth of output and hence income in the economy overtime.
Figure 2: GDP growth rate in Japan
Japan economy is considered as fourth largest world economy. It is a diversified economy with making remarkable progress in advanced technology. Being a developed country the the contribution of service sector is highest in GDP composition. The share of service sector in GDP is nearly 62%. Thus, maximum growth contribution in the economy is coming from service sector. Within the service sector retail and wholesale trade is considered as most important. The next important sector in Japan in manufacturing with making a 22% contribution in GDP (Angelini et al, 2015). Construction is also an important sector in the economy
GDP per Capita analysis
Per capita GDP is a measure of average income of the nation. Per capita GDP is obtained when GDP of an accounting year is divided by the population of that year. Since GDP is used as a measure of country’s output performance, Per capita GDP also used as a measure of average productivity of the nation. Higher the average income or productivity, higher is the living standard in the economy.
Figure 3: per capita GDP in Japan
Per capita GDP in Japan has more or less increased overtime. In 2007 per capita GDP was 46687.3 billion. This became 47606.7 billion in 2016. In 2009 per capita GDP fell to record its lowest amount. The figure of per capita GDP stood at 42724.5 billion. The downturn in the economy’s average income is explained by the global financial crisis in 2008.
Government measure to achieve output performance
Government uses monetary and fiscal policy tool to achieve targeted economic growth. The direct tools of fiscal policy include direct and indirect taxes, government expenditure in different sectors of the economy and government debt. The instruments of monetary policy are government regulation, availability of credit in the economy and its cost.
In Japan ministry of finance takes major initiatives to achieve economic growth in the postwar period. The finance ministry adapts ‘growth first’ approach. A high proportion of government fund is allocated to accumulation of capital. This policy is accompanied with a low overall government expenditure for the economy. By following this policy the government aims at keeping both the deficit and tax rate as low as possible. In addition, this will make more investible fund available for the economy. Japanese generally put a significant part of their income in saving account.
The fiscal policy of Japanese government focuses on formulation of national budget. The national budget is constructed under the the regulation of finance ministry. For each financial year the sector prepares an expenditure budget. In the budget, tax adjustment and net revenue calculation is done by Tax department of the finance ministry. The finance ministry also issues bond, controls borrowing of the government, arranges investment and loan program and other financial responsibility of the government.
The fixed investment on loan and infrastructure including both private and public enterprises accounts 15% of gross national product. Approximately 84.7% of the government revenues are collected from different taxes in the nation. A progressive tax rate prevails in Japan (Dore, 2013). In order to improve industrial output Japanese government has adapted complicated set of policies for industrial development. The policies of Japanese government mostly related to labor markets, promotion of trade and providing tax incentives to investors.
Labor Market Analysis
Types of Unemployment
Unemployment is a state when some existing and potential labor in the labor force fail to find job. The labor market of any economy always contains unemployed persons. However, there are different reasons for unemployment in the economy. Following are different types of unemployment that prevails in an economy.
Structural unemployment: Structural unemployment resulted from structural factors. Often industry changes their structure to enhance productivity. Labors who are in incompatible in the new structure become unemployed.
Cyclical unemployment: This is another common type of unemployment. Economy goes through different phases of business cycle. In the depression phase there is an economy wide depressed demand affecting production and employment opportunities. Unemployment thus resulted from a business cycle fluctuation is known as cyclical unemployment (Harris, 2015).
Frictional unemployment: Economic bottleneck causes frictional unemployment. In times of inter industry job switching people remain unemployed for a certain time period.
Disguised Unemployment: In certain sectors, there are people who are though employed but do not make any marginal contribution. This is called disguised unemployment. Agriculture is the sector where this type of unemployment mostly prevalent.
Unemployment trend in Japan
Figure 4: inflation trend in Japan
In June 2017, unemployment rate in Japan records a 2.8% fall. The unemployment rate in the previous month was 3.1%. The figure stood below 3 percent. This is accounted as reaching below a 23 years low level from the months of February to April in 2017. In addition, the ratio of job creation to its applicants is greater greater than 1. This indicates more jobs have been created in the economy and thus reduces unemployment. The ratio now stands as 1.51 as compared to 1.49% in the previous year.
Government measure to achieve full employment
In Japan, steady economic growth is viewed as a solution to unemployment problem. Poor economic performance mostly affects the young population. The young population in japan are suffering from lack of training program/. To address this issue Japan government has arranged training program for them.
Female employment is very low in Japan. In total employed people the percentage of female employment is only 48.9% (Lockwood, 2015). Full utilization of female labor force will benefit the economy with more creative ideas. Generally, 80% of female employees take leave for their childcare. Among them only 40% continues their job with first child. The female proportion in the managerial post is lower as compared to international standard. In order to improve the situation of female employment new legal framework has been designed by the government that allows 30% female employment in higher post. The government also make arrangement for childcare facilities so that females can continue their participation in the labor market.
In times of recession recovery phase government changes its labor market policies to ensure full employment in the economy. The movement towards a flexible labor market has been made in order to reduce frictional unemployment in the economy. This aims at allowing them a smooth switching of their jobs.
To resolve the problem of youth unemployment incentives care given to large companies for hiring newly joined members of the labor force. Program has been conducted to extend further support to newly graduates and young people in the society. Comprehensive support program has been arranged by the government.
Price Level Analysis
The gradual rise in general price level is called inflation. The stability or instability of price level is indicated by the rate of inflation in the economy.
Figure 5: inflation trend in Japan
In June 2017, consumer prices rose at a rate of 0.4%. The figure matches with the statistics of two previous month. The price level for food is at a stable level while that of housing and transport fell. In the previous year, food prices rose at a rate of 0.8. the inflation rate for fish and sea good is is maximum. On the other hand, prices for fresh vegetables fall. Corte inflation rate in the economy has gone up 0.4% excluding food prices. In 2015, the figure reached its maximum. When computed on a monthly basis it shows the average consumer prices were flat. Tokyo accounts a 0.1% rise in its consumer prices. Core inflation rate in Tokyo is averaged at 0.2% (Campbell, 2014).
Causes of inflation
Price increases either due to the forces coming from demand side or from the supply side. When price rises due to components of demand, it is called demand pull inflation while inflation from the supply side factors are called Cost-push inflation (Mankiw, 2014).
A rapid rise in aggregate demand generally forces price up. Rising demand at an unusually high rate creates a positive output gap. The scarcity of output givers upward pressure on price.
In the phase of increasing production cost producers increases price of their product to recover cost. Cost-Push inflation resulted increase in direct and indirect cost of the producers.
Government measure to achieve Price level stability
Price stability is a key policy objective of Bank of Japan (BOJ). Before taking measures of price stability, the term should be well defined. In Japan, Consumer prices are used to measure the stability of price level. Core inflation rate that exclude the basket of fresh food is the primary measure of inflation in Japan. Unlike many other developed countries BOJ’s inflation does not include energy prices.
In price stability front BOJ sets its stable range between 0 and 2. The main policy of BOJ is increase in interest rate (Ishikawa & Wall, 2015). BOJ has further stressed that economic situations including movements in prices is respondent to interest rate. The board of monetary policy makes its semi-annual growth rate and the movement in consumer price Index to a moderate level.
To handle deflation in the economy central bank in Japan devises ease monetary policy either by increasing the money supply or reducing the interest rate.
The above discussion gives a brief overview of economic performance in Japan. For analysis purpose GDP, growth of GDP, per capita GDP, inflation and unemployment trend has been taken into consideration. The moderate GDP values indicate well output performance of the economy. Along with this, GDP growth rate and per capita GDP is also improving in the economy. With substantial government measure the country is also achieving its target of full employment. The active measure of bank of japan helps the economy to maintain stability bin the price level.
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