Country Research Project: JAPAN

FIN501 Group 4 - 4/28/18

Jennifer Gagner, Yujie Gao, Craig Gendron, Madeline
Muench, & Jessica Wey
Agenda
● General Background and Current Snapshot of Japan’s Economics
● Economic Performance from 2003 to 2016
● Government Policy Actions
● Future Outlook and Recommendations
● Q&A
 Current Snapshot - GDP and Population Facts
Real GDP: 4940.16B USD (2016); 0.2% 4Q16 growth rate

● 7.97% of the world economy

● 4th in 2016 GDP (United States, the Euro Area, and China
were 1-3)

Real GDP Per Capita: 47607.70 USD (2016); 12.8% growth (2016)

● 377% compared to the world average

● 6th in 2016 GDP per capita (Switzerland, Australia, and
United States are 1-3)

Population: 127M (4Q17); -0.1% growth (2016)

● 8th largest population in the World (China, India, and the

Euro Area are 1-3)

http://www.raw-systems.com/4457/printable-map-of-japan-2
1. “Trading Economics.” TRADING ECONOMICS | 20 Million INDICATORS FROM 196 COUNTRIES, 2018, tradingeconomics.com/. -05-03-2018/guaranteed-printable-map-of-japan-9-in-new-tr
ends-with-printable-map-of-japan/
2. “Federal Reserve Economic Data.” FRED, Federal Reserve Bank of St. Louis, 2018, fred.stlouisfed.org/. (used for per capita and population growth rates only)
Current Snapshot - Economic Indicators
National Debt (as %GDP): 253% (Dec, 17)1

Government Deficit (as % GDP): -4.5% (Dec, 17)1

KOF Swiss Economic Institute provides a visual of the

extent of globalization (2014)2

● Worldwide globalization is increasing

● Netherlands remained the most globalized
● Japan remained unchanged when ranked in 2014;
39th in the world

1. “Trading Economics.” TRADING ECONOMICS | 20 Million INDICATORS FROM 196 COUNTRIES, 2018, tradingeconomics.com/.
2. “KOF Index of Globalization 2017: Netherlands Are the Most Globalized Country.” KOF Swiss Economic Institute, 20 Apr. 2017,
www.kof.ethz.ch/en/news-and-events/media/press-releases/2017/04/kof-globalization-index-2017.html.
 Current Snapshot - Economic Indicators
Inflation Rate: 1.5% (Feb, 18)1

Unemployment Rate: 2.5% (Feb, 18)1

● Labor force participation rate is at 60.8%

Productivity: 106 index points (Jan, 18)1

Underground Economy: 10% of the GDP (one of the smallest shadow economies) 2

1. “Trading Economics.” TRADING ECONOMICS | 20 Million INDICATORS FROM 196 COUNTRIES, 2018, tradingeconomics.com/.
2. “At 39 Percent of GDP, Russia's Shadow Economy Is the Fourth Largest in the World, According to a New Report.” Meduza, 30 June 2017,
meduza.io/en/news/2017/06/30/at-39-percent-of-gdp-russia-s-shadow-economy-is-the-fourth-largest-in-the-world-according-to-new-report.
 Current Snapshot - Economic Indicators

In 2015:
● GINI Coeff.: 0.33
● Relative Income Poverty:
16.1%
● Top vs. Bottom 20%:
6.1%

Note: Ordered in rank by GINI Coeff.

“OECD Income Distribution Database (IDD): Gini, Poverty, Income, Methods and Concepts.”OECD: Organisation
for Economic Co-Operation and Development, 2018, www.oecd.org/social/income-distribution-database.htm.
 Current Snapshot - Economic Indicators

In the health arena, Japan

continually makes progress. Japan’s
life expectancy is well above
average, even beyond that of the US
by ~5yrs.

James, Chris. “Health at a Glance 2017: OECD Indicators.” OECD, 2017,

www.oecd.org/japan/Health-at-a-Glance-2017-Key-Findings-JAPAN-in-English.pdf.
Major Industries & Comparative Advantage
In general, some of Japan’s
largest economic contributors in
Exported Goods/Services from Japan = 17.8% of Japan’s GDP1
industry are2:
The Following Represents the Top 10 Exports from Japan1:
1. Vehicles: US$146.2 billion (20.9% of total exports) ● Automobiles
2. Machinery including computers: $138.4 billion (19.8%) ● Electronic equipment
3. Electrical machinery, equipment: $105.6 billion (15.1%) ● Machine tools
4. Optical, technical, medical apparatus: $39.8 billion (5.7%)
5. Iron, steel: $28 billion (4%) ● Steel and nonferrous metals
6. Plastics, plastic articles: $25.1 billion (3.6%)
7. Organic chemicals: $17.9 billion (2.6%)
8. Gems, precious metals: $15.2 billion (2.2%)
9. Ships, boats: $12.3 billion (1.8%)
10. Mineral fuels including oil: $11.4 billion (1.6%)

1. “Japan's Top 10 Exports.” World's Top Exports, 31 Mar. 2018, www.worldstopexports.com/japans-top-10-exports/.

2. “Japan - Market Overview.” Japan - Market Overview, 6 Dec. 2017, www.export.gov/article?id=Japan-Market-Overview.

http://www.car-brand-names.com/wp-content/uploads/2015/03/Japanese-car-brands-logos.png
Economic Performance: Prior to 2003
● Japan focused on economic growth from 1960-1980s instead of defense
spending with average growth rate of 4-10%
● By the late 1980s the stock market and real estate industry caused an
economic bubble and the Tokyo Stock exchange crashed from 1990-1992
● Growth for the next 10 years was significantly lower than all of the other
major developed countries at an average of 1.5%
● The low growth suffered by Japan was identified as the “lost decade”
● As a result of the low growth Japan ran massive budget deficits to finance
large scale infrastructure projects
● Japan finally attempted “structural reform,” which led to
deflation from 1999-2003
Economic Performance: Prior to 2003

Asset Bubble
Stock Market Crash
“Lost Decade”
Economic Performance: 2003-2006
● After 10 years of slow growth and deflation, Japan turned to another
technique called quantitative easing
● By 2004 the GDP climbed to 2.2% with domestic consumption as the primary
growth factor and the economy appeared to be recovering
● Even though there were near zero percent interest rates, the quantitative
easing could not stop price deflation
● The zero-rate interest policy was abandoned in July 2006
● Unemployment hovered relatively low at 4%
Economic Performance: 2003-2006
Economic Performance: 2007-2009
● In 2008 the Japan Central Bank still had the lowest interest rates of any
developed country, but deflation still existed
● The Nikkei 225 fell 50% between June 2007 and December 2008 due to the
global economic recession
● Japan suffered 1.1% loss in real GDP in 2008 followed by a 5.4% loss in real
GDP in 2009
● Unemployment rose slightly to 5.2% in Q3 2009 from 3.7% in Q4 2007 and
over 2 million jobs were lost during the crisis
● The unemployment rate among the youth rose to 11.3%
in Q1 2009
Economic Performance: 2007-2009
Economic Performance: 2010 to Present
Japan GDP and CPI performance

● Insufficient domestic demand

● Insufficient personal consumption
● Insufficient corporate investment
● labor force reducing

● GDP (2010-2016)

● CPI ( 2010-2017)
Employment
● Unemployment rate ● labor force participation rate
Financial markets
Foreign Exchange & Stock

● Foreign exchange reserve in official

reserve assets is the highest (95%)

● The Nikkei gained 23% throughout 2012

● The Nikkei has risen 52% so far in 2013

● Stock market
Housing starts & Average property prices
● After 2012, civil engineering
activities that have stalled for
more than ten years have started
to pick up.

● Average property price

● Housing start
 Bank of Japan Monetary Policy
● Central Bank of Japan
○ Decisions made by majority vote of nine members of
policy board: the Governor, two deputy members, and
the six other members
● Bank Objectives: Independence from the Government and
Accountability to the Public
○ Tasks: Sets the amount of daily money operations,
chooses types of operational instruments, and
provides funds in market
● Foundation of the Central Bank: Price Stability
○ “Price Stability Target”: 2% based on year-on-year
change in Consumer Price Index (CPI)
Bank of Japan Response to 2007-2009 Financial
Crisis
“Since September, when the turmoil in global financial markets and in the U.S. and
European financial systems increased in severity, the Bank has promptly
undertaken various measures. These can be categorized in three areas:
1) Reductions in policy interest rates
2)Measures to stabilize the market
3)measures to support corporate financing.”

-Masaaki Shirakawa, Governor of the Bank of Japan

December 22, 2008
Fiscal Policy: Changes in T and G
● During the financial crisis from 2007-2009, Japan
adopted a heavily expansionary fiscal policy
● Increase in Government Spending (G)
○ First and Second Supplementary Budgets from Japanese
Government: 1.8 and 4.8 trillion Yen
○ Emergency share purchasing plan: 20 trillion Yen
○ Japan’s primary deficit doubled from 2008-2009
● Decrease in Taxation (T)
○ (To be continued)
Future Outlook
● Employment is projected to peak in 2018 as the decline in the working-age population accelerates
● Close the part- to full-time worker gap
● Companies could spend stockpiled cash reserves more actively to raise wages and make capital
investments to overcome capacity constraints and improve productivity
● Inflation expected to increase 1-2% over the next two years since domestic demand is expected to
increase despite the labor shortage
● Stable global economy should continue to support an increase in exports
Future Outlook
● 2020 Tokyo olympics require building infrastructure, boosting the economy
● Bank of Japan may increase 10-year bond rate
● However, the government has high public debt, can’t afford much fiscal policy
○ Increased consumption tax hike in oct 2019
● Expansionary policy could cause a bubble
● By 2025, Japan’s baby-boomers will be over 75 and collecting social security
Entrepreneurial Opportunities
● High-technology and software
● Olympic preparation - tourism, security and translation
● Renewable Energy
● Biopharmaceuticals

However:
● Younger generation is risk-averse; having grown up amid deflation and
economic stagnation
● Government supports existing businesses over start-ups
● Many women entrepreneurs compared to other countries
Opportunities
● Entrepreneurship
● Natural resources
● Infrastructure

Risks
● Slow economic growth and high public
debt, 90% of domestically held may
produce a financial crisis
● Shrinking population
Future Outlook
Possible Curve
Recommendations
● The Bank of Japan should maintain its expansionary monetary policy until
the 2% inflation target is achieved
● Structural reforms, including measures to improve corporate governance,
facilitate the exit of non-viable firms, increase female employment by
expanding childcare and improving work-life balance will boost growth, tax
breaks for companies that increase wages, and raise productivity in small
firms, are key
● Decrease public debt by increasing taxes, decreasing government spending,
and letting inflation erode the value of debts
Conclusion
● Biggest exports are automobiles, electronic equipment, machine tools, and
metals
● High National debt
● Low unemployment rate - employment is increasing, many job openings per
applicant
● Higher wages will lead to growth in disposable income and eventually boost
consumer spending to fuel further growth
● Japan has expansionary fiscal policies in place
Sources
1. https://www.boj.or.jp/en/announcements/press/koen_2008/data/ko0812d.pdf
2. https://www.rieti.go.jp/en/columns/s09_0001.html
3. http://www.oecd.org/economy/japan-economic-forecast-summary.htm
4. https://www.japantimes.co.jp/news/2018/01/04/business/economy-business/economists-generall
y-upbeat-japans-2018-outlook/#.WtkSHdPwYWo
5. http://www.tokyofoundation.org/en/articles/2018/japans-economic-outlook-in-2018
6. https://global.wharton.upenn.edu/entrepreneurship-in-japan/
7. https://www.jetro.go.jp/en/invest/attract/
Thank You!