Professional Documents
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Economy
Submitted by :
Arsalan Ahmed
Submitted to :
Nabeel Latif
Submission date:
4/2/2016
Table of Contents
Overview of Japanese Economy............................................................................. 2
Growth................................................................................................................ 2
Growth rates....................................................................................................... 2
Size of the economy........................................................................................... 2
Demographics.................................................................................................... 2
Japan Consumer Price Index (CPI) 1957-2016...................................................2
Japan Inflation Rate............................................................................................ 3
Problems faced by Japanese Economy...................................................................5
Deflation............................................................................................................. 5
High Public Sector Debt...................................................................................... 8
Current Accounts Surplus:.................................................................................. 8
Cost of debt servicing......................................................................................... 8
Measures taken by Japanese Government to boost its economy...........................9
Implementation of the Three arrows of Abenomics............................................9
Boost economic growth through bold structural reforms.................................9
The top fiscal priority is reducing government debt while promoting social
cohesion.......................................................................................................... 9
End deflation................................................................................................. 10
Conclusion / Recommendations...........................................................................10
Boost economic growth through bold structural reforms..................................10
The top fiscal priority is reducing government debt while promoting social
cohesion........................................................................................................... 10
End deflation.................................................................................................... 11
Bibliography......................................................................................................... 12
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Growth rates
Whereas initial figures had suggested that Japan had shrunk back into recession
in the third quarter, revised numbers suggest the country continues to grow.
While the changes have cemented the GDP datas reputation for unreliability, it
has also vindicated the BoJs decision not to ease monetary policy further in the
Autumn.
Demographics
The decline in Japans population makes it crucial to measure GDP and growth
relative to the number of workers. By this measure, Japan has not done badly in
the last two decades.
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Unit
Frequency
Index
Points
Monthly
2010=100,
SA
In Japan, the Consumer Price Index or CPI measures changes in the prices paid by
consumers for a basket of goods and services. This page provides the latest reported
value for - Japan Consumer Price Index (CPI) - plus previous releases, historical high
and low, short-term forecast and long-term prediction, economic calendar, survey
consensus and news. Japan Consumer Price Index (CPI) - actual data, historical chart
and calendar of releases - was last updated on April of 2016.
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Japan Prices
Last
Previous
Inflation Rate
0.30
0.00
25.00
-2.52
Percent
0.10
-0.40
4.10
-1.10
Percent
103.20 103.00
104.50
18.00
Index Points
102.50 102.60
104.10
32.00
Index Points
0.00
0.00
24.40
-2.40
Percent
GDP Deflator
96.30
93.10
113.00
87.80
Index Points
Producer Prices
99.80
100.10
115.50
48.70
Index Points
Export Prices
103.20 105.40
207.30
94.00
Index Points
Import Prices
94.40
99.90
190.40
45.90
Index Points
Food Inflation
2.70
1.70
31.60
-3.70
Percent
-3.40
-3.10
33.90
-8.60
Percent
Cpi Transportation
100.70 101.30
108.10
39.90
Index Points
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Deflation
Lately, the word deflation has become almost synonymous with Japan and its
economic problems. As explained above, the deflation in Japan was a
consequence of rising aggregate supply while at other times of a combination of
cash-building deflation and bank-credit deflation. Changes in the money supply
tend to affect prices by way of changes in the overall volume of spending. A
simple formulation of this view appears as follows:
More money equals more spending equals higher prices, or conversely, less
money equals less spending equals lower prices. This can be represented by the
formula:
P=D/S
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where P is the average price level, D the aggregate demand in nominal terms
and S the supply of goods and services expressed in physical terms, all during a
given period. This is ascertained by studying the official records from when the
fear of deflation first emerged. To see how the Japanese economy developed
during the 19902001 period, we start by focusing on aggregate demand and
prices. When it comes to aggregate demand, the Gross Domestic Revenue
(GDR)measure of nominal spending will be used which differs from the widely
used Gross Domestic Product (GDP) measure in that it includes not only (i) gross
investment expenditure on fixed assets, but also (ii) gross investment on
inventories and work in progress, as well as (iii) the current business expenditure
that is charged off in the year it is incurred (as opposed to being amortized over
a period of years). These three items are together referred to as productive
expenditure. Table 1 shows the changes in GDR as well as the Money Supply (MS
measured as M1), the Consumer Price Index (CPI) and the Producer Price Index
(PPI).
From the GDR data we can single out 1993, 1998, 1999, and 2001 as years when
the aggregate demand fell, i.e., these were years of deflationary pressure. The
rest of the years should then be years of inflationary pressure. From the money
supply data, it appears that the Bank of Japan (BoJ) did its very best to make sure
that the money supply inflated during the period under consideration. Evidence
of this is the aggressively loose monetary policy conducted, including
consecutive rate cuts down to record low levels, as shown in Figure 1.
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When considering prices, we see that consumer prices fell in 1995, 1999, 2000,
and 2001, and rose in all the other years. Producer prices fell every year during
the period except in 1997 and 2000 when they rose. Overall prices seem to have
fallen in 1991, 1992, 1993, 1994, 1995, 1996, 1998, 1999, and 2001, i.e., all
years but 1997 and 2000. On top of that, prices of real estate have fallen every
year during the period and the average price of a share at the Nikkei stock
market has fallen by over 70 percent.
Apparently, deflation was caused exclusively by rising aggregate supply in 1991,
1992, 1994, 1995, 1996; i.e., there was growth deflation, since aggregate
demand was rising in these years. Deflation in 1993, 1998, 1999, and 2001 may
have been caused by any of the three causes under consideration, i.e., growth,
cash-building or bank credit deflation.
It is clear that one major cause of the Japanese problems has been the banks, so
it seems likely that there has been at least some bank credit deflation. At the
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same time, the possibility of rising supply as being a partial cause of the
deflation cannot be excluded.
Some support is found for the preliminary conclusion that rising aggregate
supply has caused deflation.
firm creation and exit reflect a lack of economic dynamism in the business
sector. Venture capital investment is at an early stage of development and the
small and medium-sized enterprise sector is lagging
The top fiscal priority is reducing government debt while promoting
social cohesion
With a primary deficit of nearly 7% of GDP in 2014, public debt remains on an
upward path. The impact of the high debt is mitigated by low long-term interest
rates, but weakening confidence would cause interest rates to rise substantially.
A run-up in interest rates would increase debt rapidly and destabilise the
financial sector and the real economy. Large-scale revenue increases are
indispensable, although this will tend to temporarily hold back GDP growth.
Constraining spending is difficult but crucial, given upward pressure on social
outlays, notably for health and long-term care, and the need to promote social
cohesion. Social spending, which is concentrated on the elderly, has only a
limited impact on income inequality among the working-age population, whose
relative poverty rate increased through 2012.This partly reflects the rising share
of nonregular workers, who are paid much less than regular workers.
End deflation
Persistent deflation has been a headwind to growth and has exacerbated the
fiscal situation by steadily reducing nominal GDP. The Bank of Japan has set a 2%
inflation target and launched quantitative and qualitative monetary easing,
boosting its balance sheet to 65% of GDP.
Conclusion / Recommendations
Effective implementation of all three arrows of Abenomics is required for the
success of the Japanese economy.
End deflation
Continue monetary expansion to durably raise inflation to the 2% target,
while monitoring risks.
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Bibliography
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2.
3.
4.
5.
6.
7.
http://www.economicshelp.org/blog/978/economics/definition-of-deflation/
http://www.economist.com/node/18119075
http://www.economicshelp.org/blog/8968/uncategorized/cause-deflation
http://mises.org/sites/default/files/qjae8_1_2.pdf
http://www.economicshelp.org/blog/1178/economics/japanese-national-debt/
https://www.boj.or.jp/en/announcements/release_2012/k121030b.pdf
https://www.boj.or.jp/en/announcements/press/koen_2012/data/ko120217a1.p
df
8. http://www.boj.or.jp/en/announcements/press/koen_2014/data/ko140322a.pdf
9. https://ig.ft.com/sites/numbers/economies/japan
10.http://www.oecd.org/eco/surveys/Japan-2015-overview.pdf
11.http://www.tradingeconomics.com/japan/consumer-price-index-cpi
12.http://www.tradingeconomics.com/japan/inflation-cpi
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