Japan Economy

Topics: Inflation, Monetary policy, Supply and demand Pages: 7 (2189 words) Published: September 15, 2013
I. Introduction
Japan's exports rate last month at the fastest annual rate in more than two years. The weaker yen also boosted the energy heavy import bill, although the rose 10 per cent from a year earlier, economists said the net effect of the yen's retreat remained positive, because higher export revenues translate into higher exporter earnings and consequently more investment and worker's bonuses. Japan’s stock market is heavy on exporting, The Prime Minister Abe's government also hopes that the export windfall will shore up general business and consumer confidence. This is way to aim to pull Japan out of its liquidity trap and end nearly two decades of economic stagnation and deflation. This essay will discuss about background and effectiveness of Abenomics and how the Japanese government should solve this problem. The Prime Minister Shinzo Abe suggested fiscal policies which are called as ‘Abenomics’. Abenomics has three (3) arrows; ‘A massive fiscal stimulus’, ‘More aggressive monetary easing from the Bank of Japan’ and ‘Structural reforms to boost Japan’s competitiveness’. (B. McLannahan, B. Haslett and K. Carnie, 2013). This essay will critically discuss about money.

II. Birth Background of Abenomics
Japan has been suffering a huge recession for two (2) decades and higher Yen currency. Even more, they have earthquake and radioactivity problems. Japanese government predicted if they do not implement any solution for fix the economy, their economy will collapse soon. Thus, the Prime Minister Abe made some strategies which recover effectively their economy. Reasons which caused Japan’s deflation are ‘small amount of Yen’ and ‘Real estate bubble’. Japan’s deflation made three (3) bad situation which are ‘Unemployment’, ‘Decreased consume’ and ‘Higher debt’.

2.1 Unemployment
In 2009, Japan recorded 4.4% of unemployment rate. Each part of economy started to show sign of deflation. Huge unemployment caused decreased of consumption, Japan’s economy has been going to fall down. [pic]

In 2008, consumption of household sharply decreased because of low performance of exporting firms such as Toyota, NEC, Nissan and Sony. So, firms pay less than before, it caused low demand of consumption. That time, economists predicted Japanese labor market will be worse and it will affect to Japanese economy as worst. Even more, firms said they will decrease almost 90% of labour because of decreased of demand. There were 77% of people who could not receive unemployment payment (T. Fujioka, 2009). On figure 2.1, the graph is showing Japanese demand for consumption in 2008. That time, people had to save money or did not have enough money for spending. So, Aggregate demand of consumption decreased. It caused low level price and worse recession of Japanese economy.

4.2 Large National Debt
Japan gained advantages that ‘increased exporting’ and ‘low interest rate for firms’. It is actually Japan changed that advantages with debt. [pic]

This is a graph which showing the trend of Yen exchange rate change based on USD. On December of 2012, 1 USD was around 87 JPY. However, this year May, 1 USD is around 102 JPY. Decreased value of Yen does not mean the debt of Japan decreased too. It is totally different concept between currency and debt. Yen has its own value and debt also has its own value. For example, the gold is not money. It has its own value which is precious metal. The gold is a special metal, so its value is not influenced whether Yen would be stronger or weaker. Therefore, decreased Yen means the debt of Japan increased. The important thing is Japan printed money for redeeming national debt, but it did not work and the debt is being bigger.


As shown graph, Japan is holding huge burden which is 200% over per GDP debt. It is a big deal for Japan, because they know that weaker Yen made this and at the same time, they aimed this. Japanese government thinks if their economy revives, they can overcome this huge...

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Metcalfe, J (2013): DPJ Pushes For Survival, Attacking Abenomics, Japan Realtime, Article
No author (2013): Japanese Yen (JPY) to 1 US Dollar (USD), MBH Media
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