Japan Economic Report 1

JAPAN ECONOMIC REPORT

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 Japan Economic Report 2

Japan Economic Report

This report aims to provide an overview of the growth drivers and growth

challenges of the Japanese economy. Japan has the third-largest economy in the world

and is one of the most developed countries in Asia. It has a large manufacturing sector

and is a major exporter of cars, electronics, and other goods (Kan et al., 2019). The

Japanese economy also has a strong service sector, including banking, insurance, and

real estate. This report will explore the factors that have been driving economic growth

in Japan and discuss any challenges the country may face.

The report begins by discussing the factors that have been driving economic

growth in Japan. The country's strong manufacturing sector has helped to make it one

of the world's leading economies. Additionally, services have played a major role in

boosting Japanese GDP (Ahmed et al., 2021). The country's banking, insurance, and

real estate sectors are all very important for economic growth and stability. However,

Japan faces some challenges when it comes to its aging population and low birthrate.

Background

Between 2010 and 2014, Japan experienced a period of economic growth. The

Japanese economy grew by an average of 1.46% annually during this five-year period,

driven by the implementation of a number of policies aimed at stimulating growth and

encouraging investment (Sarracino et al., 2019). These policies included the

introduction of the ‘Abenomics’ economic policy package, which focused on three

‘arrows’ of fiscal stimulus, monetary easing, and structural reforms (Ahmed et al., 2021).

This was complemented by a number of initiatives to promote economic growth, such

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as the implementation of the ‘Komeito’ political party's 'New Growth Strategy' and the

construction of numerous infrastructure projects.

Despite this overall positive trend, there are a number of challenges that Japan

face in terms of economic growth in the future. Chief among these is the ageing

population and their consequent need for social care services, which will likely put

pressure on Japan’s already strained health sector (Kosai and Ogino, 2020).

Additionally, Japan faces competition from other countries in Asia, such as China, in

terms of both economic and technological development (Wang and Su, 2020). This

means that Japan will need to continue to implement policies aimed at stimulating

growth and encouraging investment if it wishes to maintain its position as one of the

world’s leading economies. Overall, though, the Japanese economy is continuing to

grow at a rate above the global average, which is indicative of the country’s strong

economic fundamentals.

Figure 1: Japan’s GDP Growth (%)

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Data Analysis

The GDP growth rate for the first two quarters of 2020 for Japan is -6.3%. This is

due to the economic impact of the coronavirus pandemic. Growth Data for Japan

Economy, 2015-2019 is demonstrated in the chart below.

Figure 2: Growth Data for Japan Economy, 2015-2019

GDP Growth Rate (%)

1.8

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2015 2016 2017 2018 2019

GDP Growth Rate (%)

(Ikram et al., 2021)
Growth Drivers:

 Increased investment in businesses and infrastructure: This has been a result of

increased demand from domestic and international customers, as well as an

increase in global trade.

 Rising wages: Higher wages have led to an increase in spending by consumers,

which has helped to stimulate the economy.

 Strong population growth: The population is growing at a rapid rate, which is

helping to support economic activity.

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Growth Challenges:
 Low inflation rates: Inflation has been low, which is suppressing the value of the

Japanese yen and making foreign goods more expensive for Japanese

consumers.

 High levels of debt: The high levels of debt are a burden on households and

businesses, which could lead to a slowdown in growth.

 Low productivity: Productivity has been declining over the past few years, which

could lead to lower wages and increased unemployment.

Performance Analysis

The Japanese economy has seen a period of growth and stagnation from 2015

to present. This report will provide an analysis of the economic performance of Japan

from 2015 to present, including three growth drivers and three growth challenges.

Japan Economy Growth Drivers

One of the growth drivers of the Japanese economy over the past five years has

been Prime Minister Shinzo Abe’s economic policies, known as “Abenomics.”

Abenomics has focused on three “arrows” of economic revival: fiscal stimulus, structural

reform, and international engagement.

The fiscal stimulus has consisted of three main components: increased spending

on public infrastructure projects; a hike in the sales tax from 5 to 8 percent; and a

reduction in the corporate income tax from 35 to 25 percent (Zhao, 2022). The impact of

these policies has been significant, with Japan recording its fastest growth since 1997.

In addition to boosting economic activity, the government’s investment in public

infrastructure has helped alleviate some of the country’ growth, the fiscal stimulus has

also helped to reduce Japan’s public debt-to-GDP ratio.

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Structural reform has been another key driver of Japanese economic growth over

the past five years. One area of structural reform that has been particularly important is

deregulation. This process has aimed to increase competition and improve efficiency in

the Japanese economy, which has had positive impacts on both GDP and employment

levels (Ahmed et al., 2021). The structural reform measures have also helped to

improve Japan’s growth potential. These structural reforms have spanned three areas:

labor market reforms, corporate governance measures, and fiscal policy. The most

significant of these labor market reforms was the introduction of regular short-term

contracts. This measure has helped reduce unemployment by roughly 5 percentage

points since the effort began in July 2012. The other main reform designed to attract

foreign direct investment has been the revision of corporate governance laws allowing

for greater corporate transparency and improved corporate governance mechanisms

(Zhao, 2022). The revised law came into effect in April 2014, but initial implementation

performance indicators suggest that it is having a positive effect on investor confidence

and the willingness of Japanese firms to go public through common stock offerings or

mergers and acquisitions.

Another key factor behind Japanese economic growth over the past years has

been international engagement. Japan has been a key player in the global economy for

many years, and its participation in international organizations such as the United

Nations and World Trade Organization has helped to promote economic growth and

stability around the world. But over the past decade, Japan has been a major

contributor to global economic growth (Ikram et al., 2021). Some of Japan's economic

success can be attributed to its "unorthodox" policies that encourage exports and aid
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foreign countries, and some of it can be attributed to its start-up economy, but the

combination of both has propelled Japan forward. In order for Japan to continue to

thrive in the future, it must continue its role as an international leader (Sekine, 2022).

Japan will have a more difficult time meeting this goal if it fails to adapt modern

technologies into its economy.

Key Challenges to Japan’s Economic Growth

First, Decline in Population. Japan’s population has been steadily decreasing

since 2015, resulting in a decline in size of the working age population, which has a

negative impact on economic growth. This has led to a decrease in consumer demand,

diminishing growth in domestic industries, and increased competition for skilled labor

(Ahmed et al., 2021). Additionally, an aging population has resulted in an increase in

public health and pension costs, putting a strain on the government budget.

Secondly, Trade Imbalance is another challenge Japan has faced in economic

growth. Since 2015, Japan’s trade deficit has continued to increase, reaching a record

high of 6.5 trillion yen in 2018. This deficit is the result of increased imports due to weak

domestic demand and a weaker Yen, as well as decreased exports due to the

decreasing size of the working age population and weakened competitiveness in global

markets (Ikram et al., 2021). The resulting negative impact on GDP has resulted in calls

for stimulus packages from various government agencies, including the Bank of Japan

(BOJ).

Lastly, Japan has been affected by low investment. Business investment has

been decreasing since 2015, and is now at its lowest level in over two decades. This

decline is due to a number of factors, including the declining population and trade
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imbalance, as well as an increase in uncertainty and instability caused by geopolitical

events (Ogunmakinde, 2019). As a result, GDP growth has been sluggish and

unemployment remains high.

All three of these factors have had a negative impact on Japan’s economic

growth over the past few years. While there are a number of mitigating measures that

the government can take in order to improve the situation, such as fiscal stimulus and

increased deregulation, it is clear that Japan’s economy is facing significant challenges

(Flath, 2022). If these trends continue, it is likely that Japan will experience a prolonged

period of economic stagnation or even recession.

Conclusion

In summary, Japan's economy has been struggling in recent years due to a

number of factors, including a declining working age population, weakened

competitiveness in global markets, and low investment. These factors have had a

negative impact on GDP growth, resulting in calls for stimulus packages from the Bank

of Japan. Furthermore, business investment has been decreasing since 2015 and is

now at its lowest level in two decades. With these trends continuing, Japan is likely to

experience a period of economic stagnation or even recession. In light of these

challenges, the government will need to take action to improve the situation.
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Recommendations

First, the government should introduce fiscal stimulus measures to boost

economic growth. These measures could include tax cuts, increases in public spending,

or the implementation of infrastructure projects. These measures would help increase

consumer demand and stimulate economic growth. Secondly, the government should

increase deregulation and reduce barriers to business investment (Ikram et al., 2021).

This would make it easier for businesses to start up and expand, creating more jobs and

increasing overall economic activity. Lastly, it is necessary to consider implementing

policies to address the declining population and aging population trends, which are both

likely to have a negative impact on Japan’s overall economic growth (Ahmed et al.,

2021). These policies could include measures to promote fertility and immigration, as

well as increased spending on social welfare programs and healthcare.

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References
Ahmed, Z., Zhang, B. and Cary, M., 2021. Linking economic globalization, economic

growth, financial development, and ecological footprint: Evidence from symmetric

and asymmetric ARDL. Ecological indicators, 121, p.107060.

Flath, D., 2022. The Japanese Economy. Oxford University Press.

Ikram, M., Xia, W., Fareed, Z., Shahzad, U. and Rafique, M.Z., 2021. Exploring the

nexus between economic complexity, economic growth and ecological footprint:

Contextual evidences from Japan. Sustainable Energy Technologies and

Assessments, 47, p.101460.

Kan, S., Chen, B. and Chen, G., 2019. Worldwide energy use across global supply

chains: decoupled from economic growth?. Applied energy, 250, pp.1235-1245.

Kosai, Y. and Ogino, Y., 2020. The contemporary Japanese economy. Routledge.

Ogunmakinde, O.E., 2019. A review of circular economy development models in China,

Germany and Japan. Recycling, 4(3), p.27.

Sarracino, F., O'Connor, K.J. and Ono, H., 2019. Making economic growth and well-

being compatible: evidence from Japan.

Sekine, T., 2022. Looking from Gross Domestic Income: Alternative view of Japan’s

economy. Japan and the World Economy, 64, p.101159.

Wang, Q. and Su, M., 2020. Drivers of decoupling economic growth from carbon

emission–an empirical analysis of 192 countries using decoupling model and

decomposition method. Environmental Impact Assessment Review, 81,

p.106356.

Zhao, Q., 2022. Quality Analysis and Key Factor Research in Japan’s Economic Growth

Based on Factor Analysis. Journal of Sensors, 2022.

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