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Economy of Japan

Japan is an island country in East Asia. Located in the Pacific Ocean, it lies to the east of China, Korea, and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea in the south. Its capital is Tokyo, one of the 47 prefectures of Japan.

Archaeological research indicates that people were living on the islands of Japan as early as the upper paleolithic period. The written history of Japan begins with brief appearances in Chinese history texts from the 1st century AD. Japanese history has been marked by alternating periods of long isolation and radical influence from the outside world. Its culture today is a mixture of outside and internal influences.

At over 377,873 square kilometres, Japan is the 62nd largest country by area. It encompasses over 3,000 islands, the largest of which are Honshu, Hokkaido, Kyushu and Shikoku. Most of Japan's islands are mountainous, and many are volcanic, including the highest peak, Mount Fuji. It ranks 10th in the world by population, with nearly 128 million people. The Greater Tokyo Area, with over 30 million residents, is the largest metropolitan area in the world.

Since it adopted its constitution on May 3, 1947, Japan has maintained a unitary constitutional monarchy with an emperor and an elected parliament, the Diet, which is one of the oldest legislative bodies in Asia. Japan has the world's second largest economy, and is the sixth largest exporter and importer and is a member of the G8, G4, and APEC.

Japan's industrialized, free-market economy is the world's third-largest by purchasing power parity (PPP) after the United States and the People's Republic of China, and second-largest by market exchange rates. Its economy is highly efficient and competitive in areas linked to international trade, although productivity is lower in areas such as agriculture, distribution, and services.

Government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation have helped Japan advance with extraordinary speed to become one of the largest economies in the world. Its reservoir of industrial leadership and technicians, well-educated and industrious work force, high savings and investment rates, and intensive promotion of industrial development and foreign trade have produced a mature industrial economy. Japan has few natural resources, and trade helps it earn the foreign exchange needed to purchase raw materials for its economy.

Distinguishing characteristics of the Japanese economy include the cooperation of manufacturers, suppliers, distributors, and banks in closely-knit groups called keiretsu; the powerful enterprise unions and shunto; cozy relations with government bureaucrats, and the guarantee of lifetime employment (shushin koyo) in big corporations and highly unionized blue-collar factories. Recently, Japanese companies have begun to abandon some of these norms in an attempt to increase profitability.

For three decades, Japan's overall real economic growth had been spectacular: a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s.

Growth slowed markedly in the 1990s largely due to the after-effects of over-investment during the late 1980s and domestic policies intended to wring speculative excesses from the stock and real estate markets. Government efforts to revive economic growth have met with little success and were further hampered in 2000 to 2001 by the slowing of the global economy.

Sliding stock and real estate prices marked the end of the "bubble economy" of the late 1980s, and ushered in a decade of stagnant economic growth. Real GDP in Japan grew at an average of roughly 1.5% yearly between 1991-1999, compared to growth in the 1980s of about 4% per year. Growth in Japan throughout the 1990s was slower than growth in other major industrial nations, and the same as France and Germany. Japan endured periods of recession around the turn of the millennium, exacerbated by recession in the United States, but from 2003 began to grow strongly again at 2.0% and this rate has held steady through 2004. The economy saw signs of strong recovery in 2005. GDP growth for the year was 2.8%, with an annualized fourth quarter expansion of 5.5%, surpassing the growth rate of the US and European Union during the same period. Unlike previous recovery trends, domestic consumption has been the dominant factor in leading the growth. Hence, the Japanese government predicts that recovery will continue in 2006.

The Tokyo Stock Exchange is the second largest in the world with market capitalization of more than $4 trillion.However, the economy saw signs of strong recovery in 2005. GDP growth for the year was 2.8%, with an annualized fourth quarter expansion of 5.5%, surpassing the growth rate of the US and European Union during the same period. Unlike previous recovery trends, domestic consumption has been the dominant factor in leading the growth. Hence, the Japanese government predicts that recovery will continue in 2006.

Distinguishing characteristics of the Japanese economy include the cooperation of manufacturers, suppliers, distributors, and banks in closely-knit groups called keiretsu( they being Mitsubishi, Sumitomo, Fuyo, Mitsui, Dai-Ichi Kangyo and Sanwa); the powerful enterprise unions and shunto; cozy relations with government bureaucrats, and the guarantee of lifetime employment (shushin koyo) in big corporations and highly unionized blue-collar factories. Recently, Japanese companies have begun to abandon some of these norms in an attempt to increase profitability.

Natural resources

A mountainous, island country, Japan has inadequate natural resources to support its growing economy and small population. Although many kinds of minerals were extracted throughout the country, most mineral resources had to be imported in the postwar era. Local deposits of metal-bearing ores were difficult to process because they were low grade. The nation's large and varied forest resources, which covered 70 percent of the country in the late 1980s, were not utilized extensively. Because of the precipitous terrain, underdeveloped road network, and high percentage of young trees, domestic sources were only able to supply between 25 and 30 percent of the nation's timber needs. Agriculture and fishing were the best developed resources, but only through years of painstaking investment and toil. The nation therefore built up the manufacturing and processing industries to convert raw materials imported from abroad. This strategy of economic development necessitated the establishment of a strong economic infrastructure to provide the needed energy, transportation, communications, and technological know-how.

Given its heavy dependence on imported energy, Japan has aimed to diversify its sources. Since the oil shocks of the 1970s, Japan has reduced dependence on petroleum as a source of energy from more than 75% in 1973 to about 57% at present. Other important energy sources are coal, liquefied natural gas, nuclear power, and hydropower. Demand for oil is also dampened by higher government taxes on automobile engines over 2000 cc, as well as on gasoline itself, currently 54 yen per liter sold retail. Kerosene is also used extensively for home heating in portable heaters, especially farther north. Many taxi companies run their fleets on liquefied gas with tanks in the car trunks. A recent success towards greater fuel economy was the introduction of mass-produced Hybrid vehicles.

Deposits of gold, magnesium, and silver meet current industrial demands, but Japan is dependent on foreign sources for many of the minerals essential to modern industry. Iron ore, coke, copper, and bauxite must be imported, as must many forest products.

Macro-economic trend

This is a chart of trend of gross domestic product of Japan at market prices estimated by the International Monetary Fund with figures in millions of Japanese Yen.

Year Gross Domestic Product US Dollar Exchange Inflation Index (2000=100)
1955 8,369,500 360 -
1960 16,009,700 360 -
1965 32,866,000 360 -
1970 73,344,900 360 -
1975 148,327,100 297.26 -
1980 240,707,315 225.82 75
1985 323,541,300 236.79 86
1990 440,124,900 144.15 92
1995 493,271,700 93.52 98
2000 501,068,100 107.73 100
2005 502,905,400 110.01 97

For purchasing power parity comparisons, the US Dollar is exchanged at Y125.16. In 1950, Japan produced about 60% of the output of India and 50% of the output of China. By 1975, China produced just over 33% and India merely 20% of the output of Japan.

Agriculture and fishery

Because only 29% of Japan's land is suitable for cultivation, a system of terrace farming is used to build in small areas. This results in one of the world's highest levels of crop yields per unit area. However, Japan's small agricultural sector is also highly subsidized and protected. Japan must import about 50% of its requirements of grain and fodder crops other than rice, and relies on imports for most of its supply of meat.

In fishery, Japan ranked second in the world behind China in tonnage of fish caught. Japan maintains one of the world's largest fishing fleets and accounts for nearly 15% of the global catch.

Agriculture. Suburban rice fieldsOnly 15% of Japan's land is suitable for cultivation. Due to this lack of arable land, a system of terraces is used to farm in small areas. This results in one of the world's highest levels of crop yields per unit area, with an overall agricultural self-sufficiency rate of about 50% on fewer than 56,000 km? (14 million acres) cultivated.

Japan's small agricultural sector, however, is also highly subsidized and protected, with government regulations that favor small-scale cultivation instead of large-scale agriculture as practiced in North America.

Imported rice, the most protected crop, is subject to tariffs of 490% and restricted to a quota of only 7.2% of average rice consumption in between 1968 and 1988 Imports beyond the quota are unrestricted in legal terms, but subject to a 341 yen per kilogram tariff. This tariff is now estimated at 490%, but the rate will soar to a massive 778% under new calculation rules to be introduced as part of the Doha Round.

Although Japan is usually self-sufficient in rice (except for its use in making rice crackers and processed foods) and wheat, the country must import about 50% of its requirements of other grain and fodder crops and relies on imports for most of its supply of meat. Japan imports large quantities of wheat, sorghum, and soybeans, primarily from the United States. Japan is the largest market for EU agricultural exports. Apples, Pears and Oranges are also grown, mostly in Hokkaido, as well as where they were first introduced by Dutch traders, in Nagasaki in the late 18th century.

Fishery. Japan ranked second in the world behind the People's Republic of China in tonnage of fish caught—11.9 million tons in 1989, down slightly from 11.1 million tons in 1980. After the 1973 energy crisis, deep-sea fishing in Japan declined, with the annual catch in the 1980s averaging 2 million tons. Offshore fisheries accounted for an average of 50 % of the nation's total fish catches in the late 1980s although they experienced repeated ups and downs during that period.

Japan maintains one of the world's largest fishing fleets and accounts for nearly 15% of the global catch, prompting some claims that Japan's fishing is leading to depletion in fish stocks such as tuna. Japan has also sparked controversy by supporting quasi-commercial whaling.

Industry

Japan is among the world's largest and most technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemical, textiles, and processed foods and is home to some of the largest and most well-known multinational corporations and commercial brands. It's also one of the leading research nations in these sectors. Japan's service sector accounts for about three-fourths of its total economic output. Banking, insurance, real estate, retailing, transportation, and telecommunications are all major industries.

Japan holds very large market shares in high-technology industries such as electronics, industrial chemicals, machine tools, electronic media and (in recent years) aerospace. Construction has long been one of Japan's largest industries, with the help of multi-billion-dollar government contracts in the civil sector. These industries make Japan a major economic global power. Robotics constitutes a key long-term economic strength. There are very few countries in the world, if any, that can match Japan in the production of high technology electronic products. The automobile, machinery and electronics industries are the largest and a major driving force within Japan's industrial sector.

The nation's industrial activities (including mining, manufacturing, and power, gas, and water utilities) contributed 46.6% of total domestic industrial production in 1989, up slightly from 45.8 percent in 1975. This steady performance of the industrial sector in the 1970s and 1980s was a result of the growth of high-technology industries. During this period, some of the older heavy industries, such as steel and shipbuilding, either declined or simply held stable. Together with the construction industry, those older heavy industries employed 34.9% of the work force in 1989 (relatively unchanged from 34.8 percent in 1980). The service industry sector grew the fastest in the 1980s in terms of GNP, while the greatest losses occurred in agriculture, forestry, mining, and transportation. Most industry catered to the domestic market, but exports were important for several key commodities. In general, industries relatively geared toward exports over imports in 1988 were transportation equipment (with a 24.8 percent ratio of exports over imports), motor vehicles (54 percent), electrical machinery (23.4 percent), general machinery (21.2 percent), and metal products (8.2 percent).

Industry is concentrated in several regions, in the following order of importance: the Kanto region surrounding Tokyo, especially the prefectures of Chiba, Kanagawa, Saitama and Tokyo (the Keihin industrial region); the Nagoya metropolitan area, including Aichi, Gifu, Mie, and Shizuoka prefectures (the Chukyo-Tokai industrial region); Kinki (the Keihanshin industrial region); the southwestern part of Honshu and northern Shikoku around the Inland Sea (the Setouchi industrial region); and the northern part of Kyushu (Kitakyushu). In addition, a long narrow belt of industrial centers is found between Tokyo and Hiroshima, established by particular industries, that have developed as mill towns. These include Toyota City, near Nagoya, the home of the automobile manufacturer.

The fields in which Japan enjoys relatively high technological development include semiconductor manufacturing, optical fibers, optoelectronics, optical media, facsimile and copy machines, industrial robots, and fermentation processes in food and biochemistry. Japan lags slightly in such fields as satellites, rockets, and large aircraft, where advanced engineering capabilities are required but they made headway through their aerospace exploration agency, JAXA with possible manned independent mission to moon, and in such fields as computer-aided design and computer-aided manufacturing (CAD/CAM), and databases, where basic software capabilities are required, and natural resources exploitation, due to the lack of them.

Infrastructure

Japan is unique in that its electric power transmission runs at different frequencies in different parts of the country — 50 Hz in Tokyo and elsewhere east of the Fuji River, 60 Hz in Osaka and other parts west. The division was due to different technology imports for the initial plant construction; the eastern region imported Siemens (Germany) technology and the western region imported GE (U.S.) technology. The household power line voltage is constant 100 V throughout the nation.

Japan has 1,177,278 km of paved roadways, 173 airports, and 23,577 km of railways as of 2004.

Science and technology

The ASIMO robot from HondaJapan is a leading nation in scientific research and the production of innovative technological products. Some of the most important industrial contributions include chemicals, metals, semiconductors, robotics, entertainment, machinery, industrial robotics and optics. It is also one of the leading nations in health care and medical research and robotics having produced QRIO, ASIMO, and Aibo, and possesses more (402,200 out of 742,500) than half of world's industrial robots used for manufacturing.

Japan is making headway into aerospace research and space exploration. It founded its aerospace exploration agency, Japan Aerospace Exploration Agency in October 1, 2003 and is involved in many missions and projects and a possible independent manned mission to the moon having shifted some of its focus away from international efforts beginning 2005. It is also a significant contributor to the International Space Station project, the most significant being the Japanese Experiment Module that will complete installation in 2007.

Services

The Tokyo Stock Exchange is the second largest in the world with market capitalization of more than $4 trillion.Japan's service sector accounts for about three-fourths of its total economic output. Banking, insurance, real estate, retailing, transportation, and telecommunications are all major industries such as Mitsubishi UFJ Financial Group, Inc., Toyota Financial Group, Inc., Nomura Group, Inc., Mizuho Financial Group, Inc., Japan Post, All Nippon Airways Co.,Ltd., Nippon Tel & Tel (NTT DoCoMo) counting as one of the largest companies in the world. The Koizumi government is attempting to privatize Japan Post, The Tokyo Electric Power Company, one of the country's largest providers of savings and insurance services by 2007. The six major keiretsus are the Mitsubishi, Sumitomo, Fuyo, Mitsui, Dai-Ichi Kangyo and Sanwa Groups. Japan is home to 326 companies from the Forbes Global 2000 or 16.3% (as of 2006).

Labor Force

Japan's labor force consists of some 64 million workers, 40% of whom are women. Labor union membership is about 12 million. The unemployment rate is currently 4.9% - a post-war high. In 1989, the predominantly public sector union confederation, SOHYO (General Council of Trade Unions of Japan), merged with RENGO (Japanese Private Sector Trade Union Confederation) to form the Japanese Trade Union Confederation.

One major long-term concern for the Japanese labor force is a low birthrate. In the first half of 2005, the number of deaths in Japan exceeded the number of births, indicating that the decline in population, initially predicted to start in 2007, has already started. While one countermeasure for a declining birthrate would be to remove barriers to immigration, the Japanese government has been reluctant to do so.

As of July 2006, the unemployment rate in Japan is 4.1%, according to the OCDE.

Trade

Buildings in the central business district of YokohamaExporting goods is an essential part of the Japanese economy. Its main export partners are the USA 22.7%, China 13.1%, South Korea 7.8%, Taiwan 7.4% and Hong Kong 6.3%. Japan's main exports are transport equipment, motor vehicles, electronics, electrical machinery and chemicals.

As a nation that relies heavily on international trade, Japan also imports a wide variety of goods. Its main import partners are China 20.7%, US 14%, South Korea 4.9%, Australia 4.3%, Indonesia 4.1%, Saudi Arabia 4.1%, UAE 4% (as of 2004). Japan's main imports are machinery and equipment, beef, fossil fuels, foodstuffs, chemicals, textiles and raw materials for its industries.

Current Economic Issues

The previous Junichiro Koizumi administration has enacted or attempted to pass (sometimes with failure) major privatization and foreign-investment laws intended to help stimulate Japan's dormant economy. Although the effectiveness of these laws is still ambiguous, the economy has begun to respond, but Japan's aging population is expected to place further strain on growth in the near future.

Heterodox economists tend to claim that Japan is far stronger economically than is usually appreciated. Some mainstream economists acknowledge that Japan, which unlike most other Western countries has maintained its industrial base, and has vast capital reserves, currently has a strong economic outlook.

The privatization of Japan Post, the Japanese postal system which also runs insurance and deposit-taking businesses, is a major issue. A political battle over privatization caused a political stalemate in August, 2005, and ultimately led to the dissolution of the Japanese House of Representatives. The Postal Savings deposits, which have until now been used to fund public works projects, many of which have had questionable economic value, stands in excess of 1.9 trillion U.S. dollars, and could be a major force in energizing the private sector.

The decline in the Japanese population as a result of a low birthrate threatens the long-term economic vitality of Japan. A higher percentage of elderly in the population will put pressures on the pension system, and will ultimately force a higher burden on the current generation of laborers.

Other Economic Indicators

Industrial Production Growth Rate: 6.6% (2004). Investment (gross fixed): 24% of GDP (2004). Household income or consumption by percentage share: Lowest 10%: 4.8%, Highest 10%: 21.7% (1993), Agriculture - Products: rice, sugar beets, vegetables, fruit, pork, poultry, dairy products, eggs, fish. Exports - Commodities: motor vehicles, semiconductors, office machinery, chemicals. Imports - Commodities: machinery and equipment, fuels, foodstuffs, chemicals, textiles, raw materials (2001).

Exchange rates: Japanese Yen per US$1 - 109.690016 (2005), 115.933 (2003), 125.388 (2002), 121.529 (2001), 105.16 (January 2000), 113.91 (1999), 130.91 (1998), 120.99 (1997), 108.78 (1996), 94.06 (1995).

Electricity: Electricity - consumption: 946.3 billion kWh (2003), Electricity - production: 1.017 trillion kWh (2003), Electricity - exports: 0 kWh (2003), Electricity - imports: 0 kWh (2003). Electricity - Production by source: Fossil Fuel: 56.68%, Hydro: 8.99%, Nuclear: 31.93%, Other: 2.4% (1998). Electricity - Standards: 100 volts at 50 Hz from the Oi River (in Shizuoka) Northward; 100 volts at 60 Hz Southward.

Oil: production: 17,330 barrel/day (2001 est.), consumption: 5.29 million barrel/day (2001 est.), exports: 93,360 barrel/day (2001), imports: 5.449 million barrel/day (2001), net imports: 5.3 million barrel/day (2004 est.), proved reserves: 29.29 million barrels (1 January 2002).

Source - Wikipedia

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