Economic Factors & Overview of Japan

Economic Factors & Overview of Japan

ContentsHistory of Japan...................................................................................3Economic Overview...............................................3GDP (Gross Domestic Product)4Inflation:5Imports/Exports:7Interest Rate:9Per Capita Income:11Stock Market Performance:12Currency Performance:13

Submitted By:

Zainab Khalid (120735)Manal Rafi (120732)

History of Japan:

Japan is anation inEast Asia. Located in thePacific Ocean, it lies to the east of theSea of Japan,China,North Korea,South KoreaandRussia. About 73 percent of Japan is forested, mountainous, and unsuitable foragricultural,industrial, orresidentialuse.As a result, the habitable zones, mainly located in coastal areas, have extremely high population densities. Japan is one of themost densely populated countriesin the world. It has 127.3 million (2013) population.The early 20th century saw a brief period of "Taish democracy" overshadowed by increasing expansionismandmilitarization.World WarIenabled Japan, on the side of the victoriousAllies, towiden its influence and territorial holdings. It continued its expansionist policy by occupyingManchuriain 1931, as a result ofinternational condemnation of this occupation, Japan resigned from theLeague of Nations two years later. In 1936, Japan signed theAnti-Comintern PactwithNazi Germany, and the 1940Tripartite Pactmade it one of the Axis Powers. In 1941, Japan negotiated theSovietJapanese Neutrality Pact.Economic Overview:

Japan is the world's largest liquefied natural gas importer, second-largest coal importer, and third-largest net importer of crude oil and oil products. Japan has limited domestic energy resources that have met less than 9% of the country's total primary energy use since 2012, compared with about 20% before the removal of nuclear power following the Fukushima plant accident.It is the third largest oil consumer and net importer in the world behind the United States and China. Furthermore, it ranks as the world's largest importer of liquefied natural gas (LNG) and second-largest importer of coal behindChina.Some of the structural features of Japan's economic growth developed in theEdo period, such as the network of transport routes, byroad and water, and thefutures contracts, banking and insurance of theOsaka rice brokers.During the Meiji period from 1868, Japan expanded economically with the embrace of themarket economy.Many of today's enterprises were founded at the time, and Japan emerged as the most developed nation in Asia.The period of overall real economic growth from the 1960s to the 1980s has been called theJapanese post-war economic miracle: it averaged 7.5 percent in the 1960s and 1970s, and 3.2 percent in the 1980s and early 1990s. Growth slowed markedly in the 1990s during what the Japanese callthe Lost Decade, largely because of the after-effects of theJapanese asset price bubbleand domestic policies intended to wring speculative excesses from the stock and real estate markets. Government efforts to revive economic growth met with little success and were further hampered by theglobal slowdown in 2000.The economy showed strong signs of recovery after 2005; GDP growth for that year was 2.8 percent, surpassing the growth rates of the US and European Unionduring the same period. As of 2012, Japan is the third largest national economy in the world, after the United States and China, in terms ofnominal GDP,and the fourth largest national economy in the world, after the United States, China and India, in terms ofpurchasing power parity.As of December 2013, Japan'spublic debtwas more than 200 percent of its annual gross domestic product, the second largest of any nation in the world. In August 2011,Moody'srating has cut Japan's long-term sovereign debt rating one notch from Aa3 to Aa2 in line with the size of the country's deficit and borrowing level. The large budget deficits and government debt since the 2009 global recession and followed by earthquake and tsunami in March 2011 made the rating downgrade.

Macro-Economic Factors of Japan GDP (Gross Domestic Product)The Gross Domestic Product (GDP) in Japan expanded 0.40 percent in the fourth quarter of 2014 over the previous quarter. GDP Growth Rate in Japan averaged 0.49 percent from 1980 until 2014, reaching an all-time high of 3.20 percent in the second quarter of 1990 and a record low of -4 percent in the first quarter of 2009. GDP Growth Rate in Japan is reported by the Cabinet Office, Japan.

Fuelled by exports, Japans gross domestic product increased at an annualized rate of 2.2% in the three months through December, government data showed Monday, well below the 3.6% growth forecast by economists. A tepid 0.3% increase in household spending in the fourth quarter was the biggest reason that GDP figures undershot forecasts. Still, it marked a second-straight quarterly increase, indicating that consumers are finally shaking off the effects of the tax increase, HSBC Holdingssaid in a note.Output growth slowed to around per cent in 2014, reflecting in part the impact of the consumption tax hike. Output growth is projected to rebound to around per cent in 2015 and 1% in 2016, supported by improving labour market conditions and expanded monetary easing. The weaker yen is expected to help sustain export growth and push inflation closer to the 2% target.Gross public debt is 230% of GDP (and net debt is 143%). In the wake of sharp output declines in the second and third quarters of 2014, the government announced the increase in the consumption tax rate that had been scheduled for 2015 will be postponed to 2017. This will make it challenging to achieve the target of a primary surplus by FY 2020, and therefore a detailed and credible fiscal consolidation plan has become even more vital. The Bank of Japan's quantitative and qualitative monetary easing should continue until the inflation target has been sustainably achieved. Bold structural reforms to boost competitiveness and potential growth are a priority, as stronger growth is needed to address the fiscal situation.

Inflation:The inflation rate in Japan was recorded at 2.20 percent in February of 2015. Inflation Rate in Japan averaged 3.15 percent from 1958 until 2015, reaching an all-time high of 25 percent in February of 1974 and a record low of -2.52 percent in October of 2009. Inflation Rate in Japan is reported by the Ministry of Internal Affairs & Communications.In Japan, the most important categories in the consumer price index are Food (25 percent of total weight) and Housing (21 percent). Transportation and communications accounts for 14 percent; Culture and recreation for 11.5 percent; Fuel, light and water charges for 7 percent; Medical care for 4.3 percent; Clothes and footwear for 4 percent. Furniture and household utensils, Education and Miscellaneous goods and services account for the remaining.

Currently, Year-on-year, the biggest price increases were reported for: food (+4.1 percent); fuel, light and water (+3.5 percent), culture and recreation (+3.5 percent) and clothes and footwear (+3.5 percent). Cost of furniture and household utensils grew by 1.6 percent, education by +2.2 percent, medical care by 1.8 percent and housing by 0.3 percent. In contrast cost of transportation and communication decreased by 0.4 percent. Month-on-month, consumer prices declined by 0.2 percent, the same as in the previous month.

The Japanese average annual inflation rate peaked in 1974 at 23.1% with the 12 month period ending in February 1974 actually reaching 25% inflation. Average annual U.S. inflation peaked six years later in 1980 at only 13.5% but the individual 12 month period ending in March 1980 had a peak of 14.76%. Japanese inflation crossed below U.S. inflation in 1978 and has remained.

Imports/Exports:Japan has a large industrial capacity, and is home to some of the largest and most technologically advanced producers of motor vehicles, electronics,machine tools, steel and nonferrous metals, ships,chemical substances, textiles, andprocessed foods.Agricultural businesses in Japancultivate 13 percent of Japan's land, and Japan accounts for nearly 15 percent of the global fish catch, second only to China. As of 2010, Japan's labour force consisted of some 65.9 million workers.Japan has alow unemployment rateof around four percent. Some 20 million people, around 17 per cent of the population, were below the poverty line in 2007.Housing in Japanis characterized by limited land supply in urban areas. Japan's exports amounted to US$4,210 per capita in 2005. As of 2012, Japan's main export markets were China (18.1 percent), the United States (17.8 percent), South Korea (7.7 percent), Thailand (5.5 percent) and Hong Kong (5.1 percent). Its main exports are transportation equipment, motor vehicles, electronics, electrical machinery and chemicals.[2]Japan's main import markets as of 2012were China (21.3 percent), the US (8.8 percent), Australia (6.4 percent),Saudi Arabia(6.2 percent),United Arab Emirates(5.0 percent), South Korea (4.6 percent) andQatar(4.0 percent).Exports in Japan decreased to 5941.06 JPY Billion in February of 2015 from 6144.70 JPY Billion in January of 2015. Exports in Japan averaged 3122.42 JPY Billion from 1963 until 2015, reaching an all-time high of 7681.69 JPY Billion in March of 2008 and a record low of 105.08 JPY Billion in January of 1963. Exports in Japan is reported by the Ministry of Finance Japan.

Japan's main imports are machinery and equipment,fossil fuels, foodstuffs (in particular beef), chemicals, textiles and raw materials for its industries. By market share measures, domestic markets are the least open of anyOECDcountry. Junichiro Koizumi's administration began some pro-competition reforms, and foreign investment in Japan has soared. Japan ranks 27th of 189 countries in the 2014Ease of doing business indexand hasone of the smallest tax revenuesof the developed world. The Japanese variant of capitalism has many distinct features:keiretsuenterprises are influential, andlifetime employmentand seniority-based career advancement are relatively common in theJapanese work environment.Japanese companies are known for management methods like "The Toyota Way", andshareholder activismis rare. Some of the largest enterprises in Japan includeToyota,Nintendo,NTT DoCoMo,Canon,Honda,Takeda Pharmaceutical,Sony,Panasonic,Toshiba,Sharp,Steel, Nippon, andSeven & I Holdings Co. It has some of the world's largest banks, and theTokyo Stock Exchange(known for itsNikkei 225andTOPIXindices) stands as the second largest in the world bymarket capitalization.As of 2006, Japan was home to 326 companies from theForbes Global 2000or 16.3 percent.In 2013, it was announced that Japan would be importingshalenatural gas. Imports in Japan decreased to 6356.66 JPY Billion in February of 2015 from 7322.20 JPY Billion in January of 2015. Imports in Japan averaged 2743.86 JPY Billion from 1963 until 2015, reaching an all-time high of 8044.06 JPY Billion in January of 2014 and a record low of 162.06 JPY Billion in January of 1963. Imports in Japan is reported by the Ministry of Finance Japan.

Interest Rate:The benchmark interest rate in Japan was last recorded at 0 percent. Interest Rate in Japan averaged 3.07 percent from 1972 until 2015, reaching an all-time high of 9 percent in December of 1973 and a record low of 0 percent in February of 1999. Interest Rate in Japan is reported by the Bank of Japan.

In Japan, decisions on interest rates are made by the Bank of Japan's Policy Board in its Monetary Policy Meetings. The BOJ's official interest rate is the discount rate. Monetary Policy Meetings produce a guideline for money market operations in inter-meeting periods and this guideline is written in terms of a target for the uncollateralized overnight call rate.

Bonds rate also varied from or fell from 2.45% in 2008 to 1.43% in 2015.

T-Bills had also had decreasing trend. T-Bills also fell from 5.7% in 1955 to 0.2% or almost 0% in 2015. On other hand Bank of Japan also says that this much low %age is due to almost no need of funds to government.

Per Capita Income:The Gross Domestic Product per capita in Japan was last recorded at 37432.91 US dollars in 2013. The GDP per Capita in Japan is equivalent to 296 percent of the world's average. GDP per capita in Japan averaged 25135.01 USD from 1960 until 2013, reaching an all-time high of 37432.91 USD in 2013 and a record low of 7079.44 USD in 1960. GDP per capita in Japan is reported by the World Bank.

Stock Market Performance:The Japan Stock Market (NIKKEI 225) increased to 19652.88 Index points in April from 19206.99 Index points in March of 2015. Stock Market in Japan averaged 9291.01 Index points from 1950 until 2015, reaching an all-time high of 38915.87 Index points in December of 1989 and a record low of 85.25 Index points in July of 1950.The Nikkei 225 Stock Average Index is a major stock market index which tracks the performance of 225 top rated companies listed in the First Section of the Tokyo Stock Exchange. It is a price-weighted index. The Nikkei 225 has a base value of 176.21 as of May 16, 1949.

In 1943, the exchange was combined with ten other stock exchanges in major Japanese cities to form a single Japanese Stock Exchange. The combined exchange was shut down and reorganized shortly after the bombing ofNagasaki. The Tokyo Stock Exchange reopened under its current Japanese name on May 16, 1949, pursuant to the new Securities Exchange Act.The TSE run up from 1983 to 1990 was unprecedented, in 1990 it accounted for over 60% of the world's stock market capitalization (by far the world's largest) before falling precipitously in value and rankings today, but still remains one of the 3 largest exchanges in the world by market capitalization of listed shares.The current TSE building was opened on May 23, 1988, replacing the original TSE building from 1931, and the trading floor of the TSE was closed on April 30, 1999, so that the exchange could switch to electronic trading for all transactions. A new facility, called TSE Arrows, opened on May 9, 2000. In 2010, the TSE launched its Arrowhead trading facility. In 2001, the TSE restructured itself as astock company: before this time, it was structured as an incorporated associationwith its members as shareholders.In 1943, Japan's government combined the country's stock exchanges into a controlled wartime institution, which collapsed along with Japan's war effort in August 1945. There was some informal, over-the-counter trading in the occupied country over the next few years, and formal trading resumed at a reorganized Tokyo Stock Exchange on May 16, 1949.Share prices gained for a while, but then crumbled in the aftermath of North Korea's invasion of South Korea on June 25, 1950. The Nikkei 225 index, which officially began to be tracked on September 7, 1950, is retroactively calculated to have dropped from a high of 176 in September 1949 to a low of 86 in July 1950.In 1952, though, with the Korean War winding down and the Japanese economy showing signs of strength, the Nikkei went above 360. The following year, it hit a high of 456. In 1960, the index crossed into four-digit territory, reaching a peak for the year at 1,356. In 1969, the Nikkei moved above 2,000.The exchange's normal trading sessions are from 09:00 a.m. to 11:30 a.m. and from 12:30 p.m. to 3:00 p.m. on all days of the week except Saturdays, Sundays and holidays declared by the Exchange in advance.The exchange is closed for the following holidays:New Year's Day,Coming of Age Day,National Foundation Day,Vernal Equinox Day,Shwa Day,Constitution Memorial Day,Greenery Day,Children's Day,Marine Day,Respect for the Aged Day,Autumnal Equinox,Health and Sports Day,Culture Day,Labour Thanksgiving Day, andThe Emperor's Birthday. Currency Performance:No true exchange rate existed for the yen between December 7, 1941 and April 25, 1949; wartime inflation reduced the yen to a fraction of its pre-war value. After a period of instability, on April 25, 1949 the U.S. occupation governmentfixedthe value of the yen at 360 perUS$1 through a United States plan, which was part of theBretton Woods System, to stabilize prices in theJapanese economy. That exchange ratewas maintained until 1971, when the United States abandoned thegold standard, which had been a key element of the Bretton Woods System, and imposed a10 percent surchargeonimports, setting in motion changes that eventually led tofloating exchange ratesin 1973.By 1971 the yen had become undervalued. Japaneseexportswere costing too little in international markets, and imports from abroad were costing the Japanese too much. This undervaluation was reflected in thecurrent account balance, which had risen from thedeficits of the early 1960s to a then-largesurplusof US$5.8 billion in 1971. The belief that the yen, and several other major currencies, were undervalued motivated the United States' actions in 1971.The yen declined during theJapanese asset price bubbleand continued to do so afterwards, reaching a low of 134 to US$1 in February 2002. TheBank of Japan's policy of zerointerest rateshas discouraged yen investments, with thecarry tradeof investors borrowing yen and investing in better-paying currencies (thus further pushing down the yen) estimated to be as large as $1trillion.[21]In February 2007The Economistestimated that the yen was 15% undervalued against the dollar, and as much as 40% undervalued against the euro.

However, this trend of depreciation reversed after theglobal economic crisis of 2008. Other major currencies except theSwiss franchave been declining relative to the yen.

On April 4, 2013 the Bank of Japan announced that they would expand their Asset Purchase Program by $1.4t USD in two years. The Bank of Japan hopes to bring Japan from deflation to inflation, aiming for 2% inflation. The amount of purchases is so large that it is expected to double the money supply. But this move has sparked concerns that the authorities in Japan deliberately devalue yen in order to boost export. However, the commercial sector in Japan worried that the devaluation would trigger an increase in import prices, especially in energy and raw materials.On May 9, 2013, the currency weakened to 100 yen for every US dollar for the first time since April 2009.Conclusion:In conclusion we can say that, years following World War II, government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defence allocation (1% of GDP) helped Japan develop a technologically advanced economy. Two notable characteristics of the post-war economy were the close interlocking structures of manufacturers, suppliers, and distributors, known as keiretsu, and the guarantee of lifetime employment for a substantial portion of the urban labour force. Both features are now eroding under the dual pressures of global competition and domestic demographic change. Japan's industrial sector is heavily dependent on imported raw materials and fuels. A tiny agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. Usually self-sufficient in rice, Japan imports about 60% of its food on a caloric basis. Japan maintains one of the world's largest fishing fleets and accounts for nearly 15% of the global catch. For three decades, overall real economic growth had been spectacular - a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Growth slowed markedly in the 1990s, averaging just 1.7%, largely because of the after effects of inefficient investment and an asset price bubble in the late 1980s that required a protracted period of time for firms to reduce excess debt, capital, and labour. The Japanese financial sector was not heavily exposed to sub-prime mortgages or their derivative instruments and weathered the initial effect of the recent global credit crunch, but a sharp downturn in business investment and global demand for Japan's exports in late 2008 pushed Japan further into recession. Government stimulus spending helped the economy recover in late 2009 and 2010, but Tokyo is warning that GDP growth will slow in 2011. Prime Minister Kan's government has proposed opening the agricultural and services sectors to greater foreign competition and boosting exports through free-trade agreements, but debate continues on restructuring the economy and funding new stimulus programs in the face of a tight fiscal situation. Japan's huge government debt, which is approaching 200 percent of GDP, persistent deflation, and an aging and shrinking population are major complications for the economy.1