economy of japan ii group 1 ii section b (1)
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Past Present
Group No
-Indrani
- Namita
-Snehith
-Himans
-Shahzeb-N. Ama
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Meiji Period & Restoration (19thCentury - Pre World War II)
Miracle period (Post World War II - 1984/85)
Asset price bubble (1984/85 - 1991)
Lost 20 years (1991-2010)
Abenomics (2010/11-Present)
Outlook of Japan's economy
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Growth rate in agriculture exceeded the growth rate of population substantiallyProduct of land and labor productivity.
The traditional sector of agriculture grew rapidly during the Meiji restoration.
Meiji government successfully financed the growth using the economic surplus
from the agricultural sector. The textile and foreign export earnings were still ve
limited.
Efficient use of its resources during the Meiji Restoration.
Meiji era attributed to relatively slow economic growth.
Agriculture driven growth till 1900. It provided a base for the economic
development.
First Contacts 16thCentury Nanban Trade
Edo Period - 1603-1868 Meiji Era 1868-19
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Industrialization - The beginning
The Industrial revolution began in the Meiji era.
Industrial revolution first appeared in textiles, including cotton and especially silk.
Adopted the form of free enterprise capitalism.
Economic reforms included a unified modern currency based on the yen, banking,commercial and tax laws, stock exchanges.
Built industries such as shipyards, iron smelters, and spinning mills, which were the
to well-connected entrepreneurs.
Takahashi and the period of Great Depression
5 principles of Economic expansion
Took Japan off the gold standard, ended the convertibility of paper money for gold,
the exchange rate float, lowered interest rates, and introduced legislation to raise the
on the Bank of Japan's issuance of bank notes.
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UnemploymentFood Shortage(Starvation)
EnergyShortage
UnemployedAgriculture, Coal Mines
Demilitarization & Economic Reforms
Economic Reforms to Recovery
Increasing Competitiveness
And
Reintegration to GlobalEconomy
Technology and technical know-howcountries, domestic innovation
Improvement in one industry influe
Rural Urban transfer of young work
Compartmentalized Competition : TLiberalization of 60s; Balance of Pa
1948-1972 : 8.2%Average Per Capita Income gro
Fixed exchange rate $1=360 Yen maintained 194
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Industry Strength +Domestic Innovation
Changing business Conditions
Managers instead of owner-managers
Stability of labor management(lifetime employment)
Yoshida Doctrine : economic reconstruction, development;
saving on, military expenses
Income Doubling Plan 1960s
Role of MITI (Ministry of International Trade andIndustry)
Government: Low interest loans to sectors designed for growth
1951 US occupation ends; political
independence restored
1952 Japan becomes a member of th
World Bank
1955 Japan joins GATT (Still faces trad
discrimination)
1956 Japan joins the United Nations
1962 Japan joins OECD; IMF Article 8
exchange restriction for current
transactions); hosts the Tokyo O
Late 60s Tariff reduction implemented
Demand
Lagging productioncapacity
(investmentdemand)
New consumerdurables
Better quality andundervalued
exchange rate(Export expansion)
S
Int
h
Wpo
DECLINE AFTER 1970S : Two oil shocks (1973-74 and 1979-80);breakdown of the Bretton Woods fixed exchange rate system
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Japanese Asset Price Bubble 1986-1991
What is a bubble economy?
A booming financial situation that is unsustainable, oftenseen in inflated land and stock prices, and low interestrates.
Plaza Agreement
Appreciation of Japanese Yen
Endaka Recession
Monetary Easing
Increased Spending
Increase in Stock Prices and Land
Monetary Tightening
Nikkei 225 dropped, Land Prices fell
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MonetaryPolicy
Monetary Easing - Discount Rate slashed from 5.00%
(Jan,1986) to 2.50%(May, 1989)
Money supply became out of control
Monetary TighteningDiscount Rate increased from
2.5%(May,1989) to 6.00%(August, 1990)
YenAppreciation
Strengthened from 236.91/U$ to 123.16/U$
Again fell to 158.50/U$ and strengthened to 29.07/U$
AssetPrices(1985-1991):
In Six Major Cities ->Commercial Land Prices rose by 302.9%
Nationwide ->Commercial Land80.9%, Residential Land51.1%
After the bubble, residential land prices fell by 19% and
commercial land prices by 13%
StockPrices:
Increased from 13,000 in 1985 to a peak of 38,915 in 1989
Slid to as low as 22,687 in 1991
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Phases ofLost Decade
Crush (19911994)
TemporaryRecovery(1995-96)
Financial Crisis(1997-98)
Obuchi Fiscal Policyand IT Bubble(1999-2000)
Crush of IT
Bubble andKoizumi
Reform (2001-2003)
Recovery(2004-2006)
Sub PrimeCrisis (2007-
2008)
GDP growth rate averaged around 1%
Debt to GDP Ratio amounted to 240%
FISCAL POLICY MONETARY POLICY
1990s Japan introduced a large number of fiscal stimulus packages.
Public Work
SME Finance
Employment Support and Tax Measures
Gradual Interest rate decrease from 6 % to fractional level fro
1991Mid 1995
1997 Japan government raised the consumption tax rate from 3% to
5%
Feb 1999 BOJ shifted to a zero interest rate policy
Sharp economic contradiction let to tax cut of 4 and 6.6 trillion in
year 1998 and 1999
August 2000 ZIRP lifted and interest raised to 0.25, Soon
economy fell back into recession and policy rate went back to z
2001 BOJ introduced quantitative easing policy
2003 and 2004 Ministry of finance undertook large scale f
exchange to stabilize the yen during the period of dollar weakn
2006 : Zero Interest rate policy ended
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ABENOMICS revival strategy of economy of Japan 2012 onwa
MonetaryPolicy
(aggressivemonetary
easing)
GrowthPolicy
(Structural
Reform )
Fiscal Policy( expansion
of publicinvestment )
Immediate Goals to achieve
The immediate goal of Abenomics is15 years of deflation in Japan by raising infl
2 percent via monetary expansionJapansquantitative easing program is into double its monetary base (i.e. mocirculation and bank deposits at the BOJ) trillion yen by the end of 2014
Initiatives under Abenomics
Abesfiscal policy involves increased spending on shovel-readypublic infrastructure projects like disaster protection works that canrevenue . To that end, landstrengtheningstrategies have been suggested that would increase public investment by 100 to 200 trillionnext 10 years.
The government also adopted a 10.3 trillion yen supplementary budget in January 2013 and increased its budget for public works byfor fiscal year 2013.
Abesproposed structural reforms are based on principles established by JapansIndustrial Competitiveness Council. The initiatives hJune 5 include special economic zones to attract foreign investment, lower taxes on corporate investment and a promise to increasincome by 40 percent over ten years.
The government has already taken major steps by joining the Trans-Pacific Partnership (TPP) negotiations, despite opposition from fand other interest groups.
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ABENOMICSVirtuous Cycle
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Assessment and Prospects
Whether
yen depreciation willcontinue ?
Whether the
2 percent inflationtarget can be achieved
?
Whether the Japaneseeconomy can escape
from
the long-term slump ?
Whether fiscalproblems
will emerge ?
Abenomicspresents
four majorissues
The launch of Abenomics to January 2013, Jcurrent account turned negative, pushing thdownward. However, from February 2013, the caccount turned positive, implying fund receiptdisbursements will also put pressure on the yen.
The BOJ forecasts consumer price inflation (excan increase in the consumption tax) for 2014 and 21.4 percent and 1.9 percent. This includes increaimport prices following the weak yen. This amountacit admission by the BOJ that it will be difficJapan to achieve 2 percent inflation.
A surge in domestic facilities investment is u
even if exports soar on a weaker yen. Unless dodemand picks up appreciably, Japanese manufawill still be expected to prefer investment abroad.
On fiscal stability, the goal is to cut the primary to GDP to half of its 2010 level by 2015 and achprimary surplus after 2020.Even if Abenomics booeconomy in 2013, a slowdown is inevitable in 20to a hike in the consumption tax, and the gover
may have to increase spending.
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Increase in Consumption Taxes in annual
increments of 1% from the present 5%
Will have a negative effect on GDP growth Consumption Tax Govt. bonds Tax revenues
to Nominal GDP ratio
Fiscal Consolidation
Inflation Rate
Consumption Tax rate can decline the Household savings.
As a result, it would be difficult for Household consumption to grow.
Prices may remain weak due to less demand and it will affect the inflation rate (2% target by Bo
Current Account
Last-minute demand before consum
tax hike resulted in a fall of Current Ac
surplusFiscal consolidation will support the
savings and as a result current accoun
will be put off for the time being.
Supply Capacity T k Ol i
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Trans Pacific Partnership can improve export
environment
Average age is a concern; Average age of capital
stock of private enterprises16 years & Average
age of public capital stock20 years
Corporate tax cuts needed for boostinginvestment in technology
Supply Capacity
Policy Proposals
Further Consumption tax hikes to minimize sovereign default risk
More Quantitative stimulus which can result in increase of household wages A measure to
deflation
Avoiding restriction of growth by energy concerns & more efficient use of energy through prom
power saving
Corporate tax cuts for increasing investment & improvement of Export environment thro
proposals
Utilization of Human capital through greater support for female labor force participation to
the problem of increasingly aged workforce.
Tokyo Olympics
Production Inducement
Raising levels of Welfare & Consum
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Source: OECD Economic Outlook (May 2014) ------OECD Average ------Jap
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