Japanese Econocy

The article named “Japan economy slides to recession”, written for B B C NEWS on 16th of February 2005, discusses the fall of gross domestic product (GDP) in the last three months of 2004 in the Japanese economy. GDP is defined as the sum of the money values of all final goods and services produced in the domestic economy during a specified period of time, usually 1 year. GDP is the most complete measure of the output of all the factories, offices, and shops in a country. Examples of such goods and services can range from agricultural products to health services, from computers to books, from guns to flowers, and from films to concerts.

A fall in GDP of Japan for the last three months of 2004 means that there was a fall in the money values of the final goods and services produced in the Japanese economy. There are three ways to calculate GDP and these are:

1- Expenditure approach which adds money values of the flow of expenditures made on all goods and services including consumers’ expenditures, government expenditures, investment expenditures and overseas expenditures.

2- Income approach which adds money values of the flow of income received by everyone involved in the production of the goods and services.

3- Output approach which adds money values of the flow of output from each sector of the economy.

Reasons mentioned for the fall of GDP in Japan are “weak exports” and “a slowdown in consumer spending” which is associated with “unseasonably mild winter” later on in the article. This indicates that Japan primarily uses the expenditure approach while calculating its GDP: Exports and consumer expenditure are variables of the expenditure approach. Furthermore, the article goes on to mention analysts’ argument that capital spending of Japan’s largest companies were on the rise during the last three months of 2004. Investment expenditures are another aspect which has to be taken into account while calculating GDP by the expenditure approach.

The main reason why Japan’s strong economic growth before the 1990’s gave way to moderate growth over the past decade with periodical recessions is mainly due to lack of consumer spending to enable further economic growth. Instead of spending their incomes, Japanese people have decided to save them, mainly a result of their cultural upbringings. This is why the article stresses that “…the economy’s fragile recovery remains dependant on an upturn in consumer spending…” Without consumer expenditure,