Essay on An assessment of the current phase of economic growth in Japan

The economy of Japan holds one of the leading places in the world economy. Japan is one of the most developed countries of the world and it is ranked top countries with the highest GDP. At the same time, the recent economic recession has affected the economy of Japan consistently and the economic cycle of the development of the economy of Japan has started to fall rapidly at a very high pace. The drop of Japan GDP reached 12,3% by the end of 2009 that a was a substantial drop into consideration a steady growth of Japanese economy within the last five years. In fact, the current downfall of the economy of Japan is the most substantial downfall within the last thirty years. In such a situation, it is hardly possible to underestimate the significance of the measures undertaken by the government of Japan to stop the downfall of the national economy, to support local business and stimulate business activities in Japan to encourage the economic growth and fast recovery after the economic recession.

On analyzing the current situation in Japan, it is important to lay emphasis on the fact that the GDP growth has started to slow down in 2007 and especially in 2008. In fact, the slowdown of Japan GDP growth rate could be viewed as the first sign of the upcoming economic recession, which started in 2008 and became particularly obvious in 2009. To put it more precisely, the national economy started to slow down its growth in 2008 but, due to the existing potential and accumulated resources, Japanese companies and economy at large managed to maintain positive performance in the course of 2008. However, in 2009, the effects of the economic recession that has already started became obvious and affected the GDP of Japan which has started to drop and the downfall persisted till the beginning of 2010, when the first signs of economic recovery could be traced. However, these signs of recovery are very uncertain taking into consideration the depth of the crisis and downfall of Japanese economy.

In fact, the downfall of the GDP of Japan is unparalleled within the last 20 years. Basically, it is possible to refer to 1998, the time of the economic crisis in East Asia which affected Japan as well. However, even in 1998, the downfall of the GDP of Japan was not as significant as it was in 2009. Naturally, today, the country keeps stumbling and attempting to overcome negative effects of the economic recession but it is a very challengeable and difficult task because Japanese economy is closely integrated into the world economy. Therefore, the effective and reliable recovery can start only when the world economy recovers after the recent economic recession.

Figure 1. Japan GDP Growth rate.

Source: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=JPY

Table 1. Japan GDP Growth from 1980 to 2009

Source: http://www.indexmundi.com/japan/gdp_real_growth_rate.html

In such a way, the economy of Japan has undergone consistent changes in the course of the economic cycle which reached its peak in 2005-2006 and started to slow down and decrease in 2007 and 2008 resulting in the recession in 2009. In all probability, today, the economy development of Japan has reached the stage of collapse and it is possible to forecast the recovery of the national economy in the nearest future. On the other hand, the recovery of the national economy will depend on the situation in international markets and policies conducted by the state to overcome negative effects of the economic recession on Japan.

Figure 2. Flow of income

The current situation in Japanese economy can be characterized as recession or contraction, when the economy is still in decline. In such a way, Japanese economy has reached the stage of contraction. The national economy and GDP were in decline for four consecutive quarters in 2008 and 2009 and it is only recently, the economy has started to revive and business activities can stimulate the growth of the GDP rate but, as it has been already mentioned above, this growth is still uncertain. In addition, the unemployment rate in Japan is 3,9% that increases the social tension. However, the inflation rate in Japan is low and comprises 1,4% only. In such a situation, the low inflation maintains the stability but the growing unemployment can shatter the financial stability of Japan.

As for the major factors that have determined the current contraction phase in the development of Japanese economy, specialists (Shigemi, et al., 2001) point out that the modern economy of Japan is highly dependent on the situation in international markets. This is why the economic recession that started in the US expanded worldwide and affected Japan. At this point, it is worth mentioning the fact that Japanese economy is an export-oriented economy. As a result, the decrease of consumption in the US and other countries naturally led to the downfall of production in Japan because local companies lost their market or decreased their sale rates. Consequently, the national economy started to stumble and the economic recession struck in 2009 affecting practically all industries and the national economy at large. In addition, the economy of Japan faced the problem of the over-production which aggravated negative effects of the international economic crisis.

Furthermore, the situation is deteriorated by the growing public debt of Japan. Today, the public debt of Japan exceeds 160% of GDP, where as its public deficit remains one of the worst among developed countries of the world. In such a situation, the government needs to undertake effective measures to encourage the rise of the national economy. In this respect, it is possible to recommend cut of state spending and maximization of the effectiveness of functioning of the national economy. The latter can be stimulated through the decrease of interest rates and stimulation of financial sector of the national economy. In this regard, the government should cooperate with the central bank of Japan to stimulate business activities.

In addition, the unemployment rate in Japan is 3,9% that increases the social tension. However, the inflation rate in Japan is low and comprises 1,4% only. In such a situation, the low inflation maintains the stability but the growing unemployment can shatter the financial stability of Japan. In such a context, it is possible to recommend devaluation of the national currency and controlled rise of inflation to stimulate business activities and attract foreign direct investments to Japanese economy.

Thus, in conclusion, it should be said that the development of Japanese economy is characterized by contraction after the consistent downfall of the GDP of Japan in 2009. The current downfall of the national economy is unparalleled and the most significant in the last 20 years. In such a situation, Japanese economy needs the state support and stabilization of the situation in international markets to recover after the recession.

References:

Bank for International Settlement, (2010). Quarterly Review.

Cargill, T. F. and S. Royama (1988). The Transition of Finance in Japan and the Untied States: A Comparative Perspective, Stanfford, Ca: Hoover Institution Press.

Shigemi, Y., et al. (2001). “Market Participants Behavior and Pricing Mechanisms in the JGB Markets”, Working Paper 01-E-1, Financial Markets Department Bank of Japan.