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Overview Of Japan's Economy

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Introduction

Overview Of Japan's Economy Japan's economy has been one of the most successful economies of the post-second World War period. During the 1950s and 1960s, it experienced rapid growth rates of real GDP, averaging at almost 10%. In the 1970s, the government began to deregulate financial markets. During the mid-1980s, the government loosened the country's monetary policy, which caused the money supply to increase and interest rates to fall. The combination of these two actions helped create a speculative bubble. Corporations were able to obtain low interest loans and used these to raise funds by speculating on the financial market. These some of these funds were used for capital investment, but mostly the funds were reinvested back into the speculative market. As the Nikkei kept rising higher and higher, corporations were able to report their speculative profits as higher earnings. Investors would then rush to purchase their stock, which drove earnings even higher and provided more funds for the company's speculative actions. This was known in Japanese as zaitech (financial engineering). Land speculation was another important aspect in the creation of the bubble. Japanese land prices are customarily high, partly because of the nation's small amount of available land. ...read more.

Middle

Japan has no natural resources and therefore it must trade with other countries. China (including Hong Kong) has replaced the United States (U.S.) as Japan's largest trading partner. The Japanese government announced recently that Japan's trade with China in 2004 totalled �22,200 billion ($211 billion), up 17.0% from 2004. For the first time China has exceeded Japan's trade with the U.S., which was valued at �20,480 billion ($195 billion), up 1.1%. China accounted for 20.1% of Japan's total trade with the world in 2004. However, in China's worldwide trade, Japan's relative importance has declined. Japan was China's largest trading partner, but since 2003 it has dropped to third place after the U.S. and the European Union. Source: Research Institute of Economy, Trade and Industry Japan's exports to China in 2004 amounted to �11,830 billion ($112.6 billion), an increase of 17.2% over the previous year. Imports from China were valued at �10,370 billion ($98.8 billion), up by 16.7%. Overall, Japan has a trade surplus of �1,460 billion ($13.9 billion) since its exports are greater than its imports. Structural Reform When Prime Minster Junichiro Koizumi assumed office in April 2001, he has campaigned for implementing structural reforms aimed to overhaul Japan's economy. ...read more.

Conclusion

However, if the U.S.'s economy slowed sharply, it will have a greater impact on Japan's economy. There would be an indirect impact on business confidence, stock markets and trade within the whole Asian region would be much more serious. Corporate debt is a major issue for Japanese companies, which has also affected the economy. However they have been performing better in recent times, mainly because of demand from China, cost cutting and a recovery in the domestic market. The surge in profits has helped to reduce corporate debt. This has led to increases in share prices, which then allows the companies to sell cross equity holdings and also repay their debt. Once companies are financial healthier, debts will become less of an issues and many will be confident about the outlook for the economy. They may decide to plough more of their profits into new investments or they might even start borrowing to invest, consequently improving the country's economy and bring Japan out from its long deflationary period. Overall, a combination of government policy as well as free market forces are required to ensure Japan's economy will recovery in the long run, which will take time. It is up to the government to monitor the economy and to take the necessary steps to ensure that the country does not slip into another recession. ...read more.

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