Intro Jpn Economy Ch3,4

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Questions and Answers

What was the primary reason behind the oil shocks affecting Japan in the 1970s?

Floating currencies had no impact on oil availability

Decrease in the demand for oil in Japan

OPEC raised prices and reduced export volume (correct)

Increase in domestic oil production

What was the income ratio between Japan and the US in terms of per capita GNP in 1980?

1 to 14

1 to 2.5

1 to 6

1 to 1.3 (correct)

What characterizes stagflation?

Decreased money supply and high unemployment

Simultaneous occurrence of recession and high inflation (correct)

High inflation and economic growth

Decline in consumer prices and economic stability

During the oil shock, how did Japanese consumers primarily respond to expected price increases?

By hoarding daily necessities Signup and view all the answers

What was the foreign oil dependency rate of Japan during the oil shocks?

99.7% Signup and view all the answers

What was a significant shift in the global economy after 1971?

The end of the Bretton Woods fixed exchange system Signup and view all the answers

What was the primary cause identified by the supply shock view regarding stagflation?

The oil shock as the cause of stagflation Signup and view all the answers

What fiscal measures did the Japanese government adopt in response to the oil shock?

Expansionary fiscal policy Signup and view all the answers

What was the trend in the affordability of consumer durables in Japan from 1966 to 1991?

Improved markedly Signup and view all the answers

Which of the following correctly describes the global monetarist view?

High inflation was caused by global monetary expansion Signup and view all the answers

Which economic policy aimed at reducing energy consumption was implemented in Japan as part of the structural reform during the oil shock?

Downsizing and closing energy-intensive industries Signup and view all the answers

What led to the floating of major currencies in 1973?

The collapse of the Bretton Woods fixed exchange system Signup and view all the answers

What was the primary objective of the Plaza Accord in 1985?

To lower the overvalued dollar Signup and view all the answers

What was a significant impact on prices as a result of the oil shock in Japan?

Wholesale and consumer prices surged Signup and view all the answers

Why is the Japanese economy particularly vulnerable to fluctuations in the yen/dollar exchange rate?

There is no yen zone in Asia for trade Signup and view all the answers

What does an expansionary economic policy aim to achieve?

Encourage aggregate demand by lowering interest rates Signup and view all the answers

What was the primary aim of the Antimonopoly Act enacted in 1947?

To preserve conditions by dissolving the Zaibatsu Signup and view all the answers

Which of the following is NOT a measure for infant industry promotion?

Elimination of export quotas Signup and view all the answers

How did trade liberalization in the 1960s impact producers?

It focused producers on improving efficiency through linked measures. Signup and view all the answers

What is a cartel?

A group of firms attempting to control prices or supply through mutual restraint Signup and view all the answers

What was one effect of the social transformation mentioned in the 1960s?

Transition from labor surplus to labor shortage Signup and view all the answers

What was the primary purpose of Japan's fixed exchange rate policy from 1949 to 1971?

To maintain a consistent exchange rate against the US dollar. Signup and view all the answers

Which economic management approach was implemented to control an overheating economy in Japan?

Tightening monetary policy by raising interest rates. Signup and view all the answers

What was one outcome of the 'Income Doubling Plan' proposed by the Japanese government in 1960?

A focus shift from ideological confrontation to economic improvement. Signup and view all the answers

Which of the following statistics reflects the price stability in Japan during the period of 1951-1971?

Wholesale Price Index rose at an annual rate of 0.7%. Signup and view all the answers

What was a significant challenge facing Japan in the early 1950s related to its industrial inputs?

Japanese products lost competitiveness due to high industrial input costs. Signup and view all the answers

How did the government intervene in the currency exchange market during economic overheating?

By reducing the circulation of yen. Signup and view all the answers

What was the average nominal GDP growth in Japan from 1951 to 1971?

14.5% per year. Signup and view all the answers

What role did MITI (Ministry of International Trade and Industry) play in the Japanese economy?

It was integral to Japan's industrialization and economic policies. Signup and view all the answers

What was a significant outcome of the US-Japan trade friction during the 1960s?

Japan faced pressure to adopt voluntary export quotas on textiles. Signup and view all the answers

What primary aim did the US have regarding the yen during the trade disputes?

To appreciate the yen to reduce the trade deficit. Signup and view all the answers

What was identified as the fundamental solution to the US trade deficit problem?

Encouraging American savings and reducing consumption. Signup and view all the answers

What economic phase did Japan experience from 1987 to 1990?

The period of the 'bubble' economy. Signup and view all the answers

What was a key characteristic of Japan's economy in the 'High Economic Growth period' from 1950s to 1970s?

Reintegration into the global economy. Signup and view all the answers

What mechanism was restored in Japan during the new economic stage?

Market Mechanism. Signup and view all the answers

What impact did the Korean War have on Japan's economy?

It caused an increase in global inflation, affecting Japan's economy. Signup and view all the answers

What was the fixed exchange rate of the yen to the dollar established during the post-war period?

360 yen to the dollar. Signup and view all the answers

Study Notes

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.

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.

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Description

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.