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Overview
The second largest market
economy in the world, Japan has a per capita income that ranks
third. In 1996, it registered a gross domestic product (GDP) of
$4.63 trillion. Following the collapse of the "bubble economy"
in the early 1990's, growth in the GDP has slowed. With the vision of
creating a more efficient economy, Japan's government is currently promoting
deregulation of numerous economic sectors.
HIGH-GROWTH ERA
Japan's postwar economy developed
from the remnants of an industrial infrastructure that had suffered widespread
destruction during World War II. In 1952, at the close of the Allied
Occupation, Japan was a "less-developed country," with a per capita
consumption roughly one fifth that of the United States. Over the next
twenty years, Japan was able to become the first postwar-era country classified
as "less-developed" to achieve "developed" status. In
1968, Japan's economy became the world's second largest, behind only that of the
United States.
The percentage of Japanese living
in cities almost doubled between 1950 and 1970, thus increasing demands for
services. During the 60's, Japan's average for exports grew 18.4% per
year. This economic growth accompanied tremendous changes in Japan's
industrial structure. Whereas agriculture and light manufacturing used to
be the mainstays of the economy, now it had shifted to heavy industry and
services. Dominating the industrial sector were iron and steel,
ship-building, machine tools, motor vehicles and electronics.
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A MATURE ECONOMY
 Although high growth rates were
predicted for the 1970's, double-digit inflation, the Middle East oil crisis,
and other factors, caused a recession which lowered future growth
expectations. This resulted in a reduction of private investment and
economic growth slowed to an average of 3.6% from 1974-1979, a big drop from the
10% it had previously experienced. There was a slight increase in the 80's
to 4.4%, but it was not until recently that a positive change has come about,
due to many factors, including the "bubble economy."
In spite of the oil crisis and what
happened, Japan's major export industries remained competitive by cutting costs
and increasing efficiency. The energy demands were reduced and the
automobile industry was able to improve it's position globally, by manufacturing
lighter and more economical vehicles. The second oil crisis in 1979
created a shift in Japan's industrial structure from emphasis on heavy industry
to development of new fields, such as the computer, semiconductor, along with
other technology and information-intensive industries. This started a
period of rapid growth.
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BUBBLE ECONOMY
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Following the 1985 Plaza Accord,
the yen rose sharply in value over the next few years to three times its value
in 1971, in the fixed exchange rate system. With the increase in the price
of Japanese exports, competitiveness was decreased overseas, while government
financial measures increased demand domestically. |
Corporate investment rose sharply
in 1988 and 1989. New equity issues rose in value as a result of higher
stock prices, thus making them an important source of financing for
corporations. In the meantime, banks sought for funds in the outlet of
real estate development. In turn, corporations used their real estate
holding as collateral for stock market speculation. A direct result of
this was the doubling of land value prices and a 180% rise in the Tokyo Nikkei
stock market index.
In May 1989, the government
tightened it's monetary policies to suppress the rise in value of assets, such
as land. However, higher interest rates sent stock prices on a steady
spiral down. The Tokyo stock market had fallen 38% by the end of 1990,
thus effectively wiping out 2.07 trillion dollars in value. Steeply
dropping land prices burdened financial institutions with bad debts and some of
them even went bankrupt. Others attempted to improve internal finances and
managed to stay afloat by limiting the supply of capital to private businesses
by being cautious in granting loans. In October 1993, the recession
bottomed out, but has been recovering slowly since then.
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THE INDUSTRIAL SECTOR
Some people expressed fears about
the competitive capability of Japanese industry due to the slow growth of the
economy in the late 90's. Technological innovation has enabled Japan to
regain a strong market position, in spite of the US's stand at the forefront of
the computer and computer software industries. Although the US is making a
comeback in it's automobile industry, Japan has retained it's position as a
leader in the semiconductor and automobile industries.
Influencing the slow recovery of
the Japanese economy was the sharp rise in the value of the Japanese yen.
Although the yen has dropped since it's all time high in 1995, the steep rise
caused many Japanese companies in key import industries to shift production
overseas. This is seen particularly in the automobile and electronics
industries. Assembly plants were opened in China, Thailand and Malaysia
and other countries for manufacturers of electrical products such as TVs, VCRs
and refrigerators. This is because the work quality was high, whereas the
labor was inexpensive.
The process of industrial and
market globalization has resulted in increases in the export of both component
parts and capital financing as well as in the import of finished goods.
Overseas production by Japanese manufacturers now accounts for 10% of total
production and is quickly rising, although it is low in comparison to the US at
27% and Germany at 17%.
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POSTWAR JAPAN
The primary characteristic of
Japan's postwar economy is the 15-year period of high growth, beginning in the
mid-1950's, that enabled it to catch up with the developed economies of Europe
and the United States. The reasons for this include high rates of both
personal savings and private-sector facilities investment, a labor force with a
strong work ethic, amply supply of cheap oil, innovative technology, and
effective government intervention in private-sector industries. Japan was
a major beneficiary of the swift growth attained by the postwar world economy,
under the principles of free trade advanced by the International Monetary Fund
and the General Agreement on Tariffs and Trade.
During this period of high growth
the competitive strength of Japanese industry rose steadily. From the
mid-1960s a current balance surplus was achieved throughout the year, with the
exception of those years following the oil crisis of 1973. In 1985, with
net external assets of $129.9 billion, Japan moved ahead of the United Kingdom
to become the world leader. During this same period, the United States led
the world in net external liabilities. Except for 1990, when it was
surpassed by Germany, Japan has maintained this position as world leader.
Though it is an understatement to
say that Japan's economic growth was based on its exports, it is a fact
that exports and private-sector facilities investment played an important role
during boom periods. Regardless of overseas increases in demand, it is
probable that the Japanese economy could be revitalized by the stimulation of
domestic demand.
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PROBLEMS AHEAD
Japan's prolonged economic troubles
have been attributed to its 50-year postwar economic system. The Japanese
government is presently taking forthright structural measures to deal with
problems stemming from the bursting of the economic bubble and the need for
thorough changes in order to accommodate industrial globalization. The
government is working to stabilize the nation's financial system and revitalize
the country's sluggish economy. After several prominent financial
institutions declared bankruptcy in 1997, an implementation of measures began in
part in 1998.
Of concern is Japan's growing
number of the elderly. As the population of the aged increases in future
years, the work force will be reduced. It will mean an increase in social
security demands as well as an increase in the tax burden that workers will be
expected to carry. It is felt that an undermanned labor force is a possible
factor in the reduction of potential growth.
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Information provided by the
Japanese Embassy
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