Economic Maturity & Slowdown: Trade

Economy of Japan TRADE YEN

OIL

Economic Maturity & Slowdown

Japanese post-war economic miracle

Why Japanese economy? Industrial Production Growth Rate: 3.3%

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es like c r u o s e r atural n f o r e t r po g as l a r u t nd largest im a n 2 efied u q i l & l i o coal, o m t he fr s ie n a p m o c e to 326 Japan is hom l 200 0 Forbes Globa

Agriculture-------------

rice, sugar beets, vegetables, fruit, pork, poultry, dairy products, eggs, fish

Only 12% of Japan's land is suitable for cultivation. Imports- large quantities of wheat, sorghum, and soybeans, primarily from the United States

Japan is home to six out of top 10 largest vehicle manufacturers in the world.

Toyota,Honda,Nizzan,Suzuki,Yamaha &Mazda

Manufacturing

Japan's service sector accounts for about three-quarters of its total economic output.

Services

Other economic indicators • Industrial Production Growth Rate: 3.3% (2006 est.)

• Investment (gross fixed): 100% of GDP (2006 est.)

• Electricity: Electricity - consumption: 946.3 billion kWh (2008) Electricity - production: 996 billion kWh (2008) Electricity - exports: 0 kWh (2006) Electricity - imports: 0 kWh (2006)

• Oil: production: 125,000 bbl/day (2006) consumption: 5.578 million bbl/day (2005) exports: 93,360 barrel/day (2005) imports: 5.449 million barrel/day (2005) net imports: 5.3 million barrel/day (2005 est.) proved reserves: 59 million bbl (1 January 2006)

Japanese economy overview Statistics GDP (PPP)

$4.28 trillion (2007 est.)

GDP growth

2.8% (2006 est.)

GDP per capita (real GDP)

$38,500 (2006 est.)

GDP by sector

agriculture: (1.6%) industry: (25.3%) services: (73.1%) (2006 est.)

Inflation

0.3% (2006 est.)

Population below poverty line

13.5% (after taxes and transfers) [1]

Labour force

66.44 million (2006 est.)

Labour force by occupation

agriculture (4.6%), industry (27.8%), services (67.7%) (2004)

Unemployment

4.1% (2006 est.)

Main industries

motor vehicles, industrial and transportation equipment, electronics, chemicals, steel, machine tools, processed foods, nonferrous metals

Economy overview cont’d Trading Partners Exports

$678.1 billion FOB (2007 est.)

Main partners

U.S. 20.4%, China 15.3%, South Korea 7.6%, Taiwan 6.3%, Hong Kong 5.4% (2007)

Imports

$573.3 billion FOB (2007 est.)

Main Partners

China 20.5%, U.S. 11.6%, Saudi Arabia 5.7%, UAE 5.2%, Australia 5%, South Korea 4.4%, Indonesia 4.2% (2007) Public finances

Public debt

176.2% of GDP, including domestic debts. (2006)

External debt

$1.547 trillion (30 June 2006)

Revenues

$1.411 trillion (2006)

Expenses

$1.639 trillion, including capital expenditures (public works only) of about $71 billion (2006 est.)

Economic aid

$9.7 billion ODA (February 2007)

Real GDP Growth

14% 12% 10% 8% 6% 4% 2%

Stable growth period

No growth period

High growth period

Yen floats

2nd Oil Shock

1st Oil Shock

Bubble collapses

2004

2001

1998

1995

1992

1989

1986

1983

1980

1977

1974

1971

1968

1965

1962

1959

1953

- 4%

1956

0% - 2%

Macro-economic trend

2007-> 2.08%

2008-> -0.6%

Macro-economic trend

Trend of gross domestic product Year

Gross Domestic Product

US Dollar Exchange

Per Capita Income (as % of USA)

1955

8,369,500

￥ 360.00

10.31

1960

16,009,700

￥ 360.00

16.22

1965

32,866,000

￥ 360.00

24.95

1970

73,344,900

￥ 360.00

38.56

1975

148,327,100

￥ 297.26

59

1980

240,707,315

￥ 225.82

74.04

1985

323,541,300

￥ 236.79

63.44

1990

440,124,900

￥ 144.15

105.82

1995

493,271,700

￥ 122.78

151.55

2000

501,068,100

￥ 107.73

105.85

2005

502,905,400

￥ 110.01

85.04

Delayed Systemic Reform? • After catch-up industrialization, Japan should have changed its system in the 1970s Long-term relations Official intervention

Open markets Private initiative

• However, large macro shocks (oil shocks, floating, stagflation, trade disputes) diverted policy makers’ attention from structural issues. • As a result, the Japanese economy continues to be over-regulated even today.

The Cause of 1970s Stagflation P

Supply shock view

AS

• OPEC’s oil price hike was the main cause. Aggressive wage hikes also contributed. • Expansionary fiscal & monetary policy accommodated and softened the blow.

Global monetarist view

14

%

World Money Growth

1962

Y

1960

• As US lost monetary discipline, the fixed rate regime collapsed in 1971-73 and USD fell. • Major central banks expanded money to counter appreciation pressure, causing global liquidity glut in the early 1970s. • Oil shock was the result, not the cause, of global inflation.

AD

12 10 8 6 4

Source: McKinnon (1979), p.264

1974

1972

1970

1968

1966

0

1964

2

12 10 8 6 4 2 0 -2 -4 General machinery

Metal products

Nonferrous metals

Iron and steel

Ceramics etc.

Oil and gas

Electrical machinery

McKinnon- Ohno (1997) chap.2 Chemicals

Paper and pulp

Wood products

Textiles

Food

1954- 73 1974- 90 Precision machinery

Transport machinery

Productivity Slowdown

Productivity Change by Industry (% / year)

Interest rate

Unchanged interest rate • The central bank’s decision to leave interest rates unchanged since early 2007… • Given slower output growth, increased uncertainty about the economic outlook and continued deflation. • The Bank of Japan has appropriately kept its short-term policy interest rate unchanged at ½ per cent since February 2007

New monetary policy framework • Central bank-> sets the policy interest rate to achieve a path of sustainable growth under price stability. • Bank of Japan’s Policy Board->0 to 2% is its understanding of price stability in the medium to long term, the first time that it has specified an inflation range. • As a course of monetary policy, which will influence the pace of economic growth and the evolution of inflation.

Economy 2009 • Japan's economics minister says, "no confidence at all" that the world's second largest economy will grow this year(2009) -Financial express(Tokyo). • Although Japan has not suffered financial turmoil on the same scale as the United States or Europe, its trade-dependent economy remains vulnerable to the global downturn. • Result->economy contracted 0.1 per cent in the third quarter after shrinking 0.9 per cent in the second, entering its first recession in seven years, the government reported

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