Japan the second largest market economy in the World Essays

Japan the second largest market economy in the World Essays Japan the second largest market economy in the World Essay Japan the second largest market economy in the World Essay Essay Topic: The Birth Mark Now the Japanese economy is the second large market economy in the world, Japan accounts for approximately two-thirds of the total GDP of Asia and therefore has played a major role in Asia economy. Japan is the biggest investor in Asia countries and a crucial financier of world financial markets. Its economic health is important to the overall global economy, especial in Asia Pacific Business Region. Since Japanese bubble economy collapsed in 1991s, Japan has grown poor economic performance for several years (1). Moreover Asian financial crisis in 1997 has affected Japanese economy recovery, but Japan still holds the key to successful economic recovery of the APBR. Multiple Explanation of Japans Economic Success Postwar Japans extraordinary economic achievements during the post-world war II period inspired awe throughout the world. In the course of three decades, Japan transformed itself from a war-devastated country, whose industrial recovery centered on the production of cheap gadget and light consumer goods, into an affluent and technologically sophisticated global industrial leader (refer to Appendix 1). In trade, Japanese export successes have contributed to expanding surpluses in the countrys international accounts since the 1970s. These huge surpluses have been invested abroad, creating a huge stock of foreign assets for Japan. By the mid-1980s, Japan had risen to prominence as the worlds largest net creditor nation. Japanese economic growth following the American occupation wars remarkable for its magnitude, speed and downright relentlessness. Between 1957 and 1984, Japans gross national product increased from $3.08 billion to $1.261 billion, a 42-fold jump. Moreover Japans economy grew at an annual rate of 9 percent per year during the high-growth years of the 1960s (2) (refer to Appendix 2). How was this economic miracle achieved? I can discuss these from following reasons. 2Government intervention in the economy and strong government-business relationships Japan has employed a version of developmental capitalism that allows for a much greater government role in promoting Japans international competitiveness than is typical in Anglo-American liberal capitalism (3). Japanese business and government leaders started to develop and implement policies aimed at promoting national economic growth following the end of the U.S occupation of Japan in 1952. The government has positively influenced economic growth through wise macroeconomic policies. Business in Japan has maintained very close relations with the bureaucracy and politician. Three sacred treasures of semi-life employment, seniority wage scales, and company union These contributed to employee loyalty and to a high degree of harmony between workers and management. Encouragement to private saving and investment Japans gross national savings at its zenith reached nearly 40 percent in the postwar period. Between 1960 and 1980, the Japanese saved around 20 percent of their disposable personal income (4). The high level of savings of households provided banks and other financial institution with ample funds for heavy investment in the private sector. To Make much of human resources and create an environment where human resources can display their capabilities Japan has invested heavily in developing an effective education and training system. Companies are responsible for providing technical training to the persons they hire. To absorb foreign culture and technology in a flexible manner and improve them to suit the Japanese condition Development of export markets through specialization The importance of the international context Japans economic success can be explained by largely the Cold War and the relationship between the United States and Japan that it produced. The cold war rivalry between the United States and the Soviet Union led the United States to shelter Japan from the vagaries of international politics, permitting the Japanese to focus their attention and resource on achieving economic growth. Advocates of free rider in which the U.S-Japan relationship has supported Japanese economic growth. The United States provided cheap technology transfer to Japan following World War II and promoted the Japanese economic buildup through its international trade policy (5). Part III What Causes the Japanese Economic Recession in the 1990s and Measures for Economic Rebirth From an economic standpoint, the contrast between the 1990s and the cold war years can be seen by looking at Japans real economic growth rate (refer to Appendix 3). In 1992, Japans economy entered a period of stagnation with economic growth rates much below the previous average. In retrospect it is clear that the Japanese economy became dominated by a financial bubble in the 1980s and early 1990s. In May 1989, the government tightened its monetary policies to suppress the rise in value of assets such as land. By the end of 1990, the Tokyo stock market had fallen 38%, wiping out 300 trillion yen (US $ 2.07 trillion) in value, and land prices dropped steeply from their speculative peak. This plunge into recession is known as the bubble economy (6). The post-bubble recession continued through the second half of the 1990s. What causes the economic recession? And how to recovery them? We can discuss in more detail. What causes economic recession? Mismanagement of economic policy In spite of the clear tendency that the bubble ceased in 1991, the government hesitated to change the policy stance toward the financial and fiscal relaxation and consequently economy went down to early zero grow. Delay of economic reform In 1980s, US and European countries promoted vigorously the deregulation policy to stimulate competition and challenge for new frontiers. However, in Japan, industries enjoyed the asset inflation and neglected to tackle for competitive capabilities. The market with remaining regulation seemed to be less attractive for international business. Weak entrepreneurial spirit Japanese business leaders tend to have the sense of yokonarabi (herd instinct) and relatively lack the self-responsibility and self-support (7). When there had problem, business leaders have strongly asked for the governmental stimulus measures without taking any drastic measure for slimming down and challenging new frontier. The Japanese business leaders are less enthusiastic in applying information system in the 1990s. Financial instability The instability of finance system has accompanied the credit crunch. Japans bubble economy resulted from the delayed change of economic policy toward tight financial policy. Soon after the authorities took the tight money policy, unfortunately taken very lately, the prices of the land and stock prices dropped dramatically (8). The Asia-pacific region, the center of world growth, is experiencing dynamic economic development against a background of political stability as the level of interdependence in the region deepens. The region was being integrated through Japanese efforts in trade, aid, FDI, technology transfer, and as a model of economic development. Many Asian countries were trying to follow in Japans developmental footstep parts of what they view as the Japanese model. The rapid growth in Asian economies since the eighties has integrated the Japanese economy deeply into the region, as can been seen from the oversea activities of Japanese companies, the divisions of labor within the Asian region, and the strengthening of relationships in the financial area. Exports have for a long time been major contributors to growth in the region. Japan remains by far the largest export from the region, though its share in total Asian exports is flopping (refer to Appendix 4). Japan is an important market for the rest of East Asias exports as well -from a high of 27 percent from Indonesia to a low of 5 percent from Hong Kong. Totally, Japan absorbs a 15-10 percent share of the export from other East Asia country (10). Japan has contributed to Asia industrial growth by supplying not only capital, but also critically needed production and process technology. The Japanese economy influences trade volumes and prices in selected commodities in APBR. For example, Japanese rice purchase affect Indonesia and Thailand, and Japanese rubber demand affects Malaysia and Thailand. Japanese performance also influences financial market in APBR, even in world. Japans foreign direct investment (FDI) flow to the region was about US$11 billion in FY 1996, mainly to China, Hong Kong, Singapore and Indonesia (11). Japans multinationals, originally led by the general trading houses, are the largest foreign investors in Asia Pacific, supplying most manufactured imports and buying large quantities of good from the region. Japan and other Asian countries economic relation Since the mid-1980s, East Asia has been viewed at the growth center for the world economy. Japan has played an important role in Asia economy development. Since the appreciation of the Yen in the middle 1980s following the Plaza Agreement of 1985, Japanese enterprises have been very active in expanding trade and investment in Asian region. For example, the share of export to East Asia out of Japans total export increased from 23% in 1985 to 43% in 1996. Similarly, the import share from East Asia also increased from 25% in 1986 to 35% in 1996. Foreign direct investment by Japan in Asia increased two-fold between 1992 and 1997 to $12.26 billion. Japans government-business alliance is pursuing an Asia-wide version of developmentalism. That is, it is exporting to the region a set of pro-growth government policies and cooperative industry practices designed to help heading manufacturing firms achieve efficiencies and market power by adopting successively more advanced technology (12). Since the mid-1980s, Japanese multinational enterprises (MNEs) have been building vertically integrated production network that they dominate in and across Asian economies. Manufactures of such electrical products as TVs, VCRs, and refrigerators opened assembly plants in China, Thailand, Malaysia, and other countries in Asia where work quality are high and labor inexpensive. On the supply side, Japanese capital continues to follow into Asia in impressive amounts ($7.76 billion in manufacturing investment in 1995, a 57 percent increased over the volume in 1994). More and more Japanese manufactures are moving into the region. On the demand side, Asian countries continue to rely heavily on Japanese technology to fuel their increasingly export-oriented economies. In 1994, 52.3 percent of Malaysias technology was imported from Japan, compared with 22.7 percent from the United States (13). In 1995, when Japan undertook FDI, 24 percent of the Japanese affiliates in the Asian newly industrialized economies (NIEs), 33 percent of those in the ASEAN -4 (Malaysia, Indonesia, Thailand, and the Philippines) and 21 percent of these in China. I can mainly talk about the relation about Japan and China, Japan and ASEAN nations. Japan Chinese economic relation Total trade between Japan and China amounted to around US$64 billion (1997), China is Japans second largest trading partner, which Japan is Chinas largest trading partner, and interdependence is deepening. Cumulative Japanese FDI in China, which had been only $3.5 billion in 1992, jumped to $8.7 billion in 1994 and then to $13.26 billion in 1995 (14). In addition, more and more Japanese manufacturers are beginning to produce not just for re-export, but for the rapidly growing China market. Japan-ASEAN economic relations In recent years, ASEAN nations have been moving toward export-oriented economic growth. Due to shortage of intermediate and capital goods necessary for product manufacturing, these nations are importing such goods from Japan for manufacturing and export. Japans trade with ASEAN region in 1997 and in 1995 shows that within than span of time exports grew approximately fivefold and imports increased by roughly 2.5 time. ASEAN accounted for 16.1% of Japans trade for 1995 (17.5% of its exports and 14.3% of imports) (refer to Appendix 5). Japans share in trade for the entire ASEAN region reached 18.6% (15.2% of exports and 21.4% of imports) (15). Japan is the top trading partner for ASEAN nations. Japans direct investments in ASEAN nations totaled US$5.13 billion in 1994. This is equivalent to 12.5% of Japans total business overseas investments and 54% of its direct investments in all of Asia (refer to Appendix 6). Headed by Indonesia that ranks at the top as destination for Japanese investment, ASEAN nations rank in the top echelon.