MACROECONOMIC POSITION OF JAPAN

Macroeconomic Position Of Japan



Macroeconomic Position Of Japan

Introduction

Japan experienced a sharp and substantial economic downturn from the autumn of 2008 to early 2009, which could be described as "falling off a cliff." Fortunately, however, the economy stopped worsening in the spring of 2009 and has been picking up since then.

There are three reasons behind the pick-up in Japan's economy.

First is the fact that overseas economies have started to recover. Especially emergmg economies, such as China, have been growing at a faster pace than expected. Currently, emerging economies are rushing to build infrastructures, such as roads and electrical power systems. Moreover, in China for example, the penetration rates of televisions and automobiles are gradually increasing along with the rise III people's income level. Emerging economies are experiencing a similar phenomenon as what Japan experienced during its high-growth period, when, along with an improvement in the transportation network, the so-called three major household items were penetrated into every family. Emerging economies are enjoying high growth due to the fact that, in addition to robust business fixed investment and private consumption, large-scale economic stimulus measures have been implemented to address the financial crisis since the autumn of 2008 and the effects of monetary easing around the world have been spreading.

How about the situations in the U.S. and European economies, where the financial crisis began? These advanced economies have also started to pick up, thanks to the implementation of large-scale fiscal policy measures and substantial monetary easing.

The financial crisis had inflicted serious damage on these economies, and they have been suffering from various after-effects. For example, financial institutions still hold a considerable amount of impaired assets, and remain cautious about extending loans. In terms of households, the hearty consumer appetite has now receded, because their purchased housing has declined in value and they are heavily indebted at the same time. Those problems have been continuing to weigh on the U.S. and European economies in achieving a full-fledged recovery.

The second reason behind the pick-up in Japan's economy IS that firms have been performing inventory restocking both at home and abroad. Firms have made rapid production and inventory adjustments in response to the fall in demand. Thereafter, as economies gradually regained stability, prospects for sales started to improve. Firms are now in the phase to increase inventories so as to attain an appropriate inventory level.

Outlook for the Economy

Now, what is the outlook for the economy? It depends on how the two contrasting factors develop. Namely, whether exports and production can maintain their favorable conditions, and whether momentum will build up for a self-sustaining recovery in domestic private demand.

In that regard, it is likely that the pace of increase in exports and production is bound to slow down. The momentum for restocking is bound to diminish as inventory approaches an appropriate level. It will also become difficult to expect the economic stimulus measures taken at home and abroad to exert the effects that they have initially ...