Intro Jpn Economy Ch3,4

Introduction to the Japanese Economy

• The presentation is about the Japanese economy, covering various aspects.

Economic Maturity and Slowdown (1970s-1980s)

• Japan experienced a slowdown in the 1970s and 1980s.
• Causes included domestic factors and external pressures.
• Domestic factors included domestic issues.
• External factors included the oil shocks of 1973-74 and 1979-80, major currency fluctuations, and trade friction with the U.S.

Real GNP Growth

• A graph displays real GNP growth since the high-growth era.
• Data show the fluctuating nature of economic growth over the years.
• The graph correlates periods of growth and decline.

Domestic Side: The End of Catching Up

• Japan's income ratio to the U.S. per capita GNP decreased over time.
• In 1950, the ratio was 1 to 14, in 1960 went to 1 to 6, in 1970, 1 to 2.5, in 1980, 1 to 1.3 and in 1990, 1 to 0.93.
• Japan's per capita income, based on purchasing power parity (PPP) surpassed several countries.
• In 1965, Japan surpassed Italy in per capita income.
• In 1975, surpassed Britain.
• In the mid-1970s, it was similar to the U.S., West Germany and France.

Affordability of Consumer Durables

• The affordability of consumer goods, such as cars, decreased significantly between the 1960s and 1990s.
• A graph showcases ownership rates for various consumer durables (color TV, washing machine, automobiles, air conditioning, etc).
• This indicates a decline in access to these goods over the period

The External Side

• The oil shocks in 1973-74 and 1979-80 significantly impacted the Japanese economy
• The Organization of Petroleum Exporting Countries (OPEC) raised prices and lowered export volumes, creating disruption.
• Floating of major currencies further influenced the market.

The Oil Shock in Japan

• Shortage: Expected price increases led to hoarding, and shortages spread to industrial inputs.
• Inflation: Wholesale and consumer prices rose beyond oil-related impacts.
• Intervention: The Bank of Japan (BOJ) intervened in early 1970s foreign exchange markets.
• Government policy: Fiscal expansion policies adopted.

Impact of Oil Shock

• Structural reforms were implemented to reduce energy consumption.
• Energy-intensive industries were downsized/closed.
• Efforts focused on increased energy efficiency.

Compared with the first oil shock of 1973-74...

• The second oil shock of 1979-80 had a significantly reduced impact.

Stagflation

• Stagflation is the simultaneous occurrence of recession and high inflation.
• The oil shocks were viewed as a causal factor in certain perspectives.

Cause or Effect?

• Different theories on the cause vs effect relationship of stagflation and the oil shocks were explained.

Floating Major Currencies

• The Bretton Woods system (1944-71) was a fixed exchange rate system.
• From late 1960s global inflation emerged.
• Expansionary policies contributed.
• In 1971, the U.S. dollar went off the fixed exchange rate to gold.
• Japan and European countries then intervened to stop their currencies' appreciation.

Intervention of Exchange Rate

• In 1985, the G5 intervened to lower the overvalued U.S. dollar.
• In 1987, the G7 intervened to stabilize the U.S. dollar.
• Intervention had a key impact on the Japanese Economy.

Trade Friction with the US

• Trade friction began in the 1960s due to cheap Japanese textiles. The U.S. imposed voluntary export quotas.
• The U.S. also pressured Japan to buy more U.S. products, in later years.
• The idea that Japan's trade surpluses were behind U.S. trade deficits was debated among nations.
• Some proposals to deal with this friction included controlling consumption in the U.S.
• Another proposal was to allow more imports to/from developing countries.

Fiscal Expansion and Consolidation

• Fiscal expansion followed by consolidation occurred in response to economic fluctuations
• During the mid-to-late 1970s, fiscal expansion occurred.
• The 1980s saw fiscal consolidation, reducing spending.
• Expansionary policies were enacted in the late 1980s, relating to a "bubble" economy period

High Economic Growth Period (1950s-1970s)

• Key features included rationalized production, macroeconomic management, industry policy, global reintegration, and social change.

New Stage

• Market systems were largely restored during this period.
• International trade resumed.
• Global inflation linked to the Korean War.

New Stage (continued) continued

• Japan regained political independence.
• Fixed yen-dollar exchange rate of 360 yen to the dollar was put into effect.
• Japan had modest levels of international reserves during this time.

International Reserve

• International reserves are external assets available.
• They are controlled by monetary authorities.

The Challenge

• The rise in cost of Japanese industrial inputs reduced competitiveness.

National Economic Goal

• Rationalizing production to increase productivity. This was contentious with labor unions.

National attention switched to economics in 1960

• Numerous labor strikes and disputes over the Japan-US Security Treaty led the Government to refocus on the economic sector.

Macroeconomic Management (Fiscal side)

• Japan's budget remained sound with an overall surplus during this time.

Macroeconomic Management (Monetary side)

• Fixed exchange rate of 360 yen to the dollar from 1949-1971 influenced the stop-go policy.
• Intervention occurred when the economy was overheating.

Overheated Economy

• Overheated economy means demand is greater than supply, causing more imports than exports.
• Resultant international reserve declines. -Depreciation would be required.

Performance of Japanese Economy (1951-1971)

• Nominal GDP rose 14.5%; Real GDP rose 9.4%; Nominal wages by 10.2% during this time frame.
• Wholesale price index and Consumer Price Index growth rates were stable.

MITI and Industrial Policy

• MITI was established in 1949, later renamed to the Ministry of Economy, Trade and Industry (METI) to promote industrialization in Japan.
• Economists debate the extent of MITI's impact on this growth.

The reason for the official intervention

• Avoided excess competition to strengthen international competitiveness, leading to business consolidations and output export quotas.
• Infant industry promotion involved short-term protection for industries without current competitive advantages. (infant industry protection).

Policies for restricting competition

• Antimonopoly Act of 1947 was enacted to dissolve large conglomerates (Zaibatsu).
• Certain types of cartels were deemed permissible.

Social Transformation

• Lifestyle altered significantly, with labor surplus changing to labor shortages.
• Environmental consequences emerged.
• Political landscapes changed

Trade Liberalization (1960s)

• Gradual approach to trade liberalization.
• Tariffs lowered in tandem with industrial promotion measures.
• Government focused on economic efficiency.

This quiz explores the Japanese economy's evolution, focusing on its growth, maturity, and slowdown during the 1970s and 1980s. It examines key factors that influenced economic changes, including domestic issues and external pressures like oil shocks. Participants will analyze data on real GNP growth and Japan's comparative income ratios.