Essay on Japanese Economy

Essay on Japanese economy

The economy of Japan has the third largest economy by GDP (the national income and output of the country.); the fourth largest by Purchasing Power Parity and it’s the second largest developed economy in the world. The country’s GDP per capita was the 22nd highest in 2013 and it is a member of the Group of Eight (The Group of Eight was the name of a forum for the governments of a group of eight leading industrialized countries, including the UK, USA, Canada, France, Japan, Italy and Germany.).

Japan has a comparative advantage in manufacturing electronic goods, this is the reason why it is the third largest automobile manufacturing country and it has the largest electronic goods industry (Toyota is currently the largest car maker in the world; Nissan, Honda, Suzuki and Mazda are also counted for some of the largest car makers.). But facing the increasing competition from the United States of America, China and South Korea, manufacturing industry in Japan focuses primarily on producing high-tech goods. (E.g. optical instruments and robotics.)

This is the diagram of trend of Gross Domestic Product of Japan at market prices with figures in millions of US dollars。

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By looking at the figures, we can see that Japan’s GDP in 2014 is about 5000 billion US dollars whereas it was nearly 6000 billion US dollars a year ago. During this 12 months period, Japan’s growth rate has decreased by 1.8%. This negative growth figure does not necessarily mean that Japan is facing a possible recession time, but the announcement of this negative growth of the country did strike fears in investors and consumers.

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PS: The top line represents Japan

From this graph we can still see that Japan is doing a much better job as it has a lot better GDP value in comparison with UK.

The country’s GPD per capita is in a continuously increasing trend from 2012-2014. (Diagram below)

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GDP per capita is often used as an indicator of the country’s standard of living, because it takes into account the relative cost of living and the inflation rate of the country. It is clear that Japan’s GDP per capita has reached a new high in 2014. From the graph below, UK has a significant decline in PPP in 2008 (because of the financial crisis) and they haven’t recovered very well since then.

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PS: The top line represents UK’s PPP figure

Japan’s inflation rate is growing rapidly in recent years. When the general price level rises, each unit of currency buys fewer goods and services. This high inflation of the country adds inefficiency to the market, makes it difficult for businesses to plan and budget in the long-term.

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When we go back into history, we found that the Japanese economy has suffered in lower growth because of deflationary pressures (which can be seen on the graph from 2010-2013). Because when prices are falling people are reluctant to spend money, as they are concerned that prices will be cheaper in the future, therefore, they keep delaying purchases. So their current inflation figure might just be healthy for their economy as it can give the economy a boost.

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PS: The top line represents UK

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This diagram shows the government debt of Japan as a percentage of the country’s GDP and it is in a continuously increasing trend in the past 6 years. (This trend is resulted from the large government budget deficit.)

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Japan recorded a Government Debt to GDP of 227.20% of the country's GDP in 2013. From the graph we can see that UK has a much lower Government debt compare to Japan’s. The history has shown us that the best way to reduce a nation’s debt-to-GDP ratio is to focus on boosting GDP rather than cutting debt. By concentrating on enlarging the denominator, we can get a smaller number for the national debt as percentage in GDP. So with a quadrillion in debt, Japan should definitely focus on boosting its GDP.