The Economic Performance Of Japan Between 2005 And 2014

Describe the Government’s Plans to Diminish Unemployment.

Japan's advanced economy and global trade

Japan is an island country located in East Asia bordering countries such as Taiwan, China, Russia, and Korea. Good government-industry teamwork, mastery of towering technology, and high job ethic are some of the factors that have helped this country to become an advanced economy. The services contribute the highest to the Gross Domestic Product, that is, 71.1%. Industry and agriculture contribute 27.7% and 1.2% respectively (Central Intelligence Agency (US), 2017). Japan is among the globe’s leading and most technologically superior manufacturers of motor vehicles, steel, machine tools, processed foods, electronic equipment, nonferrous metals, and chemicals. Its top trading partners are China, Korea, and the United States with motor vehicles and parts, electrical machinery and industrial equipment being the top exported products (GlobalEDGE, 2017). With nearly no energy resources, this nation is the world’s foremost importer of oil, coal and liquefied natural gas. Besides, for the past one decade, Japan’s economy has entered into recession nearly three times, that is, 2008 (-1.093), 2009 (-5.42) and in 2011 (-0.115). The government has been devising measures meant to stimulate economic development. For instance, the “Three Arrows” economic renaissance plan commonly referred to as “Abenomics.” Japan also has a low level of unemployment and inflation. This report explores the economic performance of Japan between 2005 and 2014. The economic indicators covered include the real GDP, GDP per capita, real GDP growth rate, unemployment, and inflation.

Real GDP is an economic measure that quantifies the inflation adjusted market price of products manufactured in an economy during a given period. By using the real GDP, it is possible to determine the GDP growth rate which is important in telling whether the economy is expanding quickly or slowly (McTaggart, Findlay, & Parkin, 2015). Since the real GDP shows the progress of the economy, it enables the policymakers to determine whether the economy requires a boost or restraint.  

From 2005 to 2007, the real GDP of Japan was increasing steadily. However, this progress was interfered by the global financial crisis of 2008-2009. In 2008 and 2009, the country encountered a decline in its real GDP with 2009 having the largest drop. In 2010, the real GDP picked up very fast though there was a slight decline in 2011 due to another recession that occurred (World Bank, 2017). From 2011 to 2014, the actual GDP of this nation increased a scenario that can be partly tied to “Abenomics.”

The yearly percentage deviations in the real Gross Domestic Product is known as the GDP growth rate. This measure is vital in displaying the economic development of the country and also when comparing the progress of different economies across the globe. GDP growth rate is one of the key instruments used to determine whether the economy is in recession, contracting or expanding. Furthermore, the investors rely on the GDP growth rate to amend asset allotment in their portfolios. Usually, economies with high growth rate draw more investors for their stocks and corporate bonds (Gillespie, 2014).

Real GDP and its growth rate

Between 2005 and 2007, Japan’s economic growth rate was above 1%. However, the global financial crisis witnessed in 2008 and 2009 made the economic to enter into a recession. In 2008 the economy grew by -1.09% and worsened in 2009 to -5.42%. Despite this situation, the growth rate picked up fast in 2010 to 4.19%. Unfavorable economic conditions in the country lead to another recession in 2011, -0.12% (The World Bank, 2017). Since then, Japan’s economic growth has remained below 2%.

Real GDP Per Capita is a measurement that displays the economic output for each person in an economy. The real GDP per capita is determined by dividing the real Gross Domestic Product with the entire population. This measurement plays a major role in showing the trends in the living standards of individuals. Therefore, a declining real GDP per capita can be an indication of deteriorating living standards (Boyes & Melvin, 2012). Additionally, economists use this instrument to compare the strength of world economies.

The real GDP per capita of Japan rose steadily from 2005 to 2007 before declining in 2008 and 2009 because of the impact of the Great Depression. However, from 2009, the real GDP per capita of this nation has been on the rise. In 2014, Japan’s real GDP per capita was 46466.123 U.S dollars compared 42724.535 registered in 2009 (The World Bank, 2017).

Government Efforts to Attain Production Output Performance

The prime minister of Japan, Shinzo Abe, availed an all-inclusive economic strategy package in 2013 to sustainably revitalize the economy of the country while upholding fiscal discipline. This reform is commonly referred to as Abenomics. This three-pronged approach combines flexible fiscal policy, monetary policy, and structural reforms. The immediate goal of this proposal was to enhance the domestic demand and the growth of the Gross Domestic Product. The structural changes are meant to improve labor market, increase competition and expand trade partnerships (The Government of Japan, 2017).

Low birth rates and the rapid aging population is one of the major threats to the economy of Japan as this scenario is continually leading to a shortage of labor supply. Therefore, the Japanese government has put in place strategies to put this problem under control. For example, the government is increasing the number of childcare centers to increase the participation of women in economic activities of the country. Furthermore, the leadership intends to make use of foreign talent through trade liberalization.

Adequate education and training are necessary for long-term growth in the economy. Better learning and training is known to advance the productivity and minimize the wastage of scarce resources. This government is boosting the knowledge by investing in relevant infrastructures, research, and development to stimulate the provision of a qualified pool of personnel (Hsu, 2014).

Real GDP per capita and its trends

The term unemployment refers to a circumstance where ready and able to work individuals fail to secure work to do at the going wage rate. The typical kinds of unemployment incorporate cyclical, structural and frictional unemployment. Cyclical unemployment is also referred to as Keynesian “demand deficient” unemployment and takes place when there is inadequate demand for products in the economy. The graduates who are yet to find employment and those workers who abandon their jobs in search for better ones usually contribute to the frictional type of unemployment in an economy. On the other hand, structural unemployment is caused by structural changes in the country. The deployment of technology at a workplace often results in structural unemployment as machines replace human labor (Sloman, Wride, & Garratt, 2015). 

Like many other economies in the world, Japan experiences cyclical unemployment. During the recessions of 2008 and 2009, the demand for goods and services in this nation declined and resulted in the unemployment. Also, when the demand for products like vehicles drop, the firms are known to reduce their workforce and hence cyclical unemployment. Due to lack of perfect information and the new graduates entering the job market, frictional unemployment occurs in this economy. Those workers who leave their jobs in search of greener pastures and relocate to different geographical locations remain unemployed for some time before securing another job. Being a mastery of towering technology, Japan also encounters structural unemployment. The employment of technology in work areas such as banking institutions results in structural unemployment (Nakamura, 2015).

Unemployment rate displays that percentage of the country’s labor force that is unemployed. Between 2005 and 2007, the unemployment level in this country has gone above 5.1%. The lowest level of unemployment was recorded in 2007, 3.9%. When country entered into recession in 2008 and 2009, unemployment rose to 4% and 5.1% respectively. After the worldwide economic downturn, unemployment started declining steadily and reached 3.6% in 2014 (The World Bank, 2017).

The government of Japan has put measures in place meant to provide support for the operation of business enterprises. For example, in September 2014, the leadership formed “Venture Business Creation Council” to encourage lively interactions between big firms and the start-ups. This plan has the objective of boosting improved matching between big business and the startups to facilitate the creation of concrete businesses in the country and hence more jobs (Yoo, 2016).

The government has availed tax incentives to enable the private businesses to invest in projects that would boost their productivity. The government has also devised a new method under which firms can confirm in advance if any regulatory restrictions affect their business as a way of decreasing regulatory uncertainty for new business operations (Tridico, 2015).

Government efforts to attain production output performance

The fiscal stimulus contained in the three “policy arrows” of 2013 provided a plan for the development of infrastructure in Japan. As a result, the government is spending in constructing critical-infrastructure projects like tunnels, bridges, as well as earthquake-resistant roads (Aoyagi, Ganelli, & Murayama, 2016). Such efforts are necessary for providing a constructive environment for the flourishing of companies.

Inflation entails a persistent rise in the general prices of commodities in an economy. Cost-push and demand-pull factors create inflation in an economy. Cost-push influences incorporate an increase in the prices of inputs such as lobar and raw material. Since the businesses are profit motivated, they tend to pass the additional costs to the consumers and hence higher prices. Demand-pull factors include those activities that increase the amount of money in the economy such as an increase in wages and purchase of government bonds (Hubbard & O'Brien, 2013).

From the graph five above, it is evident that Japan has encountered exceedingly low levels of inflation and in other cases deflation. Between 2005 and 2016, the highest inflation was attained in 2014, 2.762% (The World Bank, 2017). Deflation is a major concern as seen in years like 2005, 2009, and 2010.

The deflation and extremely low inflation in Japan arise from too little demand. Most Japanese use an extremely small portion of their incomes and hence weak household consumption (Hsu, 2014). This scenario indicates that the aggregate demand is progressing at a persistently sluggish pace than the aggregate supply.

Government Measures to Curb Deflation

In April 2013, the Bank of Japan instigated Quantitative and Qualitative Monetary Easing with the objective of overcome deflation. The intention of the government is to achieve an inflation level of 2%. In 2014, the Bank of Japan pre-emptily increased its monetary easing to attain the targeted inflation level (Hausman & Wieland, 2015). This scheme involved the implementation of audacious expansionary monetary instruments by the Bank of Japan (BOJ). For example, the Bank of Japan engaged in the extensive purchase of the government bonds to inject more money into the economy with the view of stimulating consumption and production.

Besides, the Bank of Japan has implemented a yield control curve and negative interest rate. The purpose of these plans is to increase the aggregate demand curve and also speed up inflation through a drop in the long-term interest rates to attain 2% mark inflation. Despite these measures in place, the government has not achieved its objective as the deflation was encountered in 2016.

Unemployment and its types

Conclusion

Japan has an advanced economy and is globe’s leading and most technologically superior manufacturer of machine tools, electronic equipment, processed foods, and motor vehicles. Despite having a highly developed economy, this country has encountered several economic challenges in the past one decade. For instance, country's economy has fallen into recession almost three times, that is, in 2008, 2009 and 2011. The country is also suffering from deflation, low birth rate, and rapidly aging population. Therefore, the leadership of Japan has been devising measures meant to solve these problems and propel the economy. The three “policy arrows” is one of the steps taken and it combines flexible fiscal policy, monetary policy and structural reforms to sustainably revitalize the economy of the country while upholding fiscal discipline. For example, there is a significant expenditure on key infrastructures to provide the necessary environment for the operation of businesses. Such action is intended to stimulate economic growth and also reduce unemployment. Finally, the issue of deflation is being solved through expansionary monetary policies which involve the extensive purchase of the government bonds and negative interest rate.

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