Economy of Japan - Current Economic Issues

Current Economic Issues

The Koizumi administration, which held office until 2006, enacted or attempted to pass (sometimes with failure) major privatization and foreign-investment laws intended to help stimulate Japan's economy. Although the effectiveness of these laws is still ambiguous, the economy began to respond, but Japan's aging population was expected to place further strain on growth in the future (Locke 2004)."

Keynesian economists claimed that Japan's economy was far stronger than generally believed (Locke 2004). Some mainstream economists acknowledged that Japan, which unlike most developed countries had maintained its industrial base, and had vast capital reserves, had a strong economic outlook in 2004.

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, stands in excess of $1.9 trillion, and could be a major force in energizing the private sector.

The Japanese monetary authorities' continued desire to depress the price of the Japanese yen relative to other key specific currencies to protect domestic business from imports may no longer be feasible. The most recent record intervention in 2003 amounted to over 17 trillion yen, more than one third of one trillion US dollars at the time and nearly 3% of Japan's 2003 GDP, being sold in favor of other non-yen denominated assets. However, since 2005, Japan has not directly intervened to buy currency, as yen carry trade has effectively carried out the same task.

Interestingly, international trade expanded by 60% from 91.4 trillion yen to 142.6 trillion yen from 2001 to 2006. Taking in account the economic participation rate, Japan's GDP per worker increased steadily during that period.

The OECD downgraded its economic forecasts on March 20, 2008 for the Japan for the first half of 2008. Japan does not have room to ease fiscal or monetary policy, the 30-nation group warned. For Japan, the OECD said the pace of underlying growth appears to be softening despite support from buoyant neighboring Asian economies. The organization expects first-quarter GDP to be up 0.3 percent and predicts a rise of 0.2 in the second quarter (CNN 2008-03).

On November 17, 2008, Japanese government officials announced that the economy was in a recession. It was reported that Japan's economy contracted at an annual rate of 1.8% in the third quarter of 2008 and shrank 0.8% through the fiscal year that ends March 2009. In July 2009 unemployment reached a post-war high of 5.7 percent, according to the Japan Times. Although the economy recovered in 2010 levels of public debt remain extremely high, approaching 226% of GDP (Jackson 2010-04). In 2012 the Organization for Economic Cooperation and Development (OECD) Yearbook editorial (Gurría 2012) stated that Japan's debt "rose above 200% of GDP partly as a consequence of the tragic earthquake and the related reconstruction efforts."

On March 17, 2010 the Bank of Japan moved to boost yen reserves for 3-month bank loans to 20 trillion yen, although economists such as Richard Koo of the Nomura Research Institute see this as a move merely to please the Democratic Party of Japan because, as no money is leaving the financial system, there is no impact on long term rates in either the ordinary market or the Foreign exchange market. As a result of this the foreign press and the International Monetary Fund believe Japan should be doing more to help its economy recover (Jackson 2010-04).

In August 2010 the yen hit a 15-year high against the US dollar in nominal terms (BBC 2010-08). In real exchange rate terms, however, the yen was still valued at less than its average since 1990.

On October 2011, the Japanese Ministry of Finance spent around Y5 trillion-Y7.5 trillion ($60 billion-$80 billion) to buy dollars against the yen.The intervention came after the dollar touched a record low of 75.31 yen and pushed the world's main reserve currency up past 79 yen. The dollar, however, slipped below 78 in European trade (Reuters 2011-10-31).