Japan Macro and Micro Economics - Case Study Example

Running head: japan macro and micro economics 12th March Introduction Japan economy is rankedas the third largest in the world in terms of gross domestic product (GDP) and is known as the most developed countries with a lot of innovations. Japan is known as the third largest manufacturer of automobile and electronic goods. The country experiences competition from countries like China and South Korea. The growth trend of Japan is usually estimated quarterly by bank of Japan where the country estimated world private financial assets is more than $14.6 trillion and it has more than 500 companies that are located in Japan. This paper will discuss, indentify and comment on the main macroeconomic indicators and any macroeconomic issues or policies which are important to Japan economy in the last ten years. Financial crisis Many countries in the world do face financial crisis leading to deterioration of the global economic condition. Six years back, Japan as a nation had no financial crisis comparing with other countries like United States. Japanese economy was unharmed until 2008, where Japan experienced decline of foreign demand and the rise of Japanese yen’s exchange rate which led to financial crisis in the country. Due to innovation, Japan exported a lot of automobiles and other products which the country depended on, and during this time, there was a decline in exportation thus Japan had to step the economy during the fourth quarter of 2008 and the first quarter of 2009 (Abel, 2007). The decline of foreign demand resulted to Japan gross domestic product (GDP) growth rate to be negative 10 (-10.0%) for a period of six months. To respond to the situation of financial crisis, Japan lowered the interest rate and took fiscal measures thus engaging in microeconomic policy responses so that financial crisis could be solved and thus preserving financial systems and other financial institutions (Bernanke, 2008). Japan economy is experiencing a high debt gross domestic product ratio and the lowering of interest rates despite being among the best developed countries. The problem is worse among the developed countries due to high debt gross domestic product with a short term interest rate which is zero bound for more than 10 years. Due to high dept of gross domestic product Japan is operating surplus and even close to 95% of the government depts. The debts are held by domestic investor despite high level of dept outstanding. The table below shows the trend of gross domestic product of Japan at the market prices as estimated by international monetary fund. Year GDP US dollar exchange Inflation index Nominal per-capital GDP PPP 2000 8,396,500 360 10.31 - 2002 16,009,700 360.00 16.22 - 2004 32,866,000 360.00 24.95 - 2006 73,344,900 110 97 85.0.4 71.03 2008 1363000 100 -10 - 2010 47372134 88.54 98 89.5 71.49 Fiscal policy as response to the financial crisis Due to inflation pressure and the decline of export products, Japan had to take policies to revival its economic situation, though the interest rate had been already close to zero bound even before the global financial crisis. Due to this financial crisis, Japan took fiscal policy where it was higher than other developed countries so the Japanese government worked out a 26 trillion budget and included two supplementary budgets in 2008 and 2009. The budget was worth around 130 trillion yen in terms of the size of the project. To boost the economy and to secure a growing future economy, the government again in 2009 in December allocated 7.2 trillion yen. Due to these measures, a 4.2 % increase in 2010 was experienced comparing with other passed years, these expansionary fiscal measures in Japan, the gross domestic product marked a positive growth rate in 2009. The subsidies that the government took to purchase energy conserving home appliances (eco- point system) have contributed to the growth of Japan economy though the government is accumulating a lot of depts. Japan fiscal problem The Japanese budget deficit is a problem to the young generation and the gross domestic product has been a concern to all the developed countries. Though the government has to take action to the academics, healthy facilities, investors and the general public as a whole, the challenge is how to explore sustainable fiscal planning while maintaining the current economic growth. The government has been working to improve the efficiency of the fiscal expenditure than lowering the level of budget deficit. This will mean that the government projects will have to face budget cuts thus restructuring government expenditure. When the government expenditure is restructured the private sectors that do rely on the government to operate will be affected thus the economy will be lowered making it hard for the economy to be sustainable. This will mean that this will cause negative impact to the economy at last. The fiscal problem can only be achieved through low interest rates so as to reduce government dept and thus economy will flourish (Imai, 2010). This implies that the government will have to get fund from the donors though it is associated with high interest rate. This means that the government has to stimulate business investment in the private sector which will refund the same with a high interest rate thus boosting the real economy. The concept is likely to work in the Japanese government and can be able to boost the economy since Japan is running a significant current account surplus and the dominant buyers or the holders are domestic investors either from the government or from the private sectors. In Japan there are two types of investors, the first group is the domestic investors whose demand curve is seen as flat meaning that the profit that is got is flat thus no profit, while the next is the foreign investors whose demand curve is more elastic to the interest rate level. This means that Japan supplies the products more than the demand of the investors. Unemployment rate Japan employment rate remains substantially unchanged from 1994 which was at 3.7%. From January 1994, the rate has been the lowest figure and the number of employed persons increased with a 0.5% to 62.62 million. This indicates that in terms of employment, Japan has been working harder and by its being innovative country, young people are being employed by various companies. Japan is known as the manufacture of automobile and other products that can help and raise the farming making the country to be dependant and be leading in export of agricultural products (Blinder, 2001). Japan is well known in the exportation though Japan agricultural sector accounts for about 1.4% of the total gross domestic product this is because only 12% land in Japan is suitable for cultivation. Despite small cultivation area Japan is known as the second largest agricultural product importer of rice, wheat and soybeans among others. Due to many industrial companies in Japan, and agricultural products the number of unemployed persons is low compared with other developed countries. The number of employed person do increase sharply since Japan is an innovative country in the industrial sector, mining and in the agricultural sectors which accounts for the sustainability of the economy making Japan unemployment rate to be low. Infrastructural development Japan is a member of International Monetary Fund (IMF) which more than 188 countries have joined and the aim is to foster global monetary cooperation. International Monetary Fund helps the developed and undeveloped countries with funds for financial stability, promote trade among the countries, sponsor high employment and reduce poverty around the world. For example, in Japan, international monetary fund do assist Japan with fund to carry infrastructural development like building of roads to facilitate transportation in Japan. Japan roads are large and more than 1.2 million kilometers are means of transport that is used by the citizens (Michael, 2000). Due to mining of oil in Japan, Japanese government does encourage the citizens to buy cars since the car ownership fees and fuel levies are used to promote energy efficiency. International monetary fund do help and fund Japan to develop its infrastructural development through use of loan which is borrowed (Bernanke, 2008). The rail transport is used as a means of transport by the agricultural sectors to transport their products like rice, wheat, and soybeans which are exported to other countries. The loan bought from the donors are still been used to develop industries that were long ago constructed since the aim of international monetary fund is to alleviate poverty in the world as a whole, thus providing fund to individual countries like Japan. Monetary policy The monetary policy limit the Japanese economy due to the zero bound interest rate this is due to the policy of monetary policy which works to lower the interest rate or increasing monetary base which will increase the money supply. Due to the high inflation rate that Japan has been experiencing of recent makes Japan to be excluded from borrowing though lower percentage is allocated to support healthy facilities and other key infrastructural development (Friedman 2003). This means that the World Bank must be able to control fund supply in Japan so as to have a monetary base that will reduce the inflation rate thus having a stable economy that the citizens of Japan can be able to bear with. The policy makers have to make good monetary solutions during high inflation in Japan and achieve a strong economic growth rate. This means that the policy makers like the central bank must consider balance among inflation in Japan, real economic growth and the financial crisis. Conclusion Inflation, gross domestic product and labor market do have much influence in the development of Japan since these accounts for economic growth rate that helps Japan to be stable economically. The three macroeconomic indicators do relate to each other and they are closely linked with one another. The labor market or the employed persons will make Japan output of agricultural sector or the industries to have high output therefore this will increase the gross domestic product and lower the inflation stabilizing the economy of Japan. Due to government aim to stabilize the economy and being innovate enough more industries and rise of exportation leads to decline in unemployment rate thus achieving the goal of having a stable economy. The monetary policy is there in Japan to make sure that the borrowed fund is stabilized and controlled effectively not to make the young generation to have a burden to pay the loan and should not be diverted to other issues that may lead to mismanagement of fund in Japan. Development of infrastructure must be carried out and all healthy facilities together with education being prioritized to achieve the international monetary fund aim of alleviating poverty in non developed countries. References Abel, A. 2007. Macroeconomics in Japan. London: Prentice Hall. Bernanke, B. 2008. Nonmonetary Effects of the Financial Crisis in the Propagation Of The Great Depression. Princeton: Princeton University Press. Blinder, A. 2001. .Labor Turnover in the Japan. New York: New York Press. Friedman, M. 2003. A Monetary History of Japan, Princeton: Princeton University Press. Imai, M. 2010. The Key to Japans Competitive Success. New York: Random House. Michael, C. 2000. Japan Centre, Kaizen Strategies for Improving Team Performance. London: Pearson Press. Read More