Paper

Macroeconomic Study of Japan

Macroeconomic Profile – Long and Short Run macroeconomic experience:

At the beginning of the 20th century, the Japanese economy was largely based on agriculture. In the 1930s, manufacturing and mining came to account for more than 30% of GDP. After World War II, the economy revived with the help of modern factories and highly educated work force. By the late 1970s, however, the Japanese economy began to move towards a more service-oriented base. During the 1980s, jobs in the service sector increased, while secondary-sector employment remained stable. In the early 1990s, the falling asset prices led to banks accumulating large percentage of non-performing loans and could not lend more money. Thus the quantity of loans reduced and lesser funds were available for economic growth.

Japan’s economy contracted in 2008 and in July 2009 unemployment reached a post-war high of 5%. The levels of public debt remained extremely high in 2010. In the second quarter of 2010, China overtook Japan as second largest economy of the world. Its economy was disrupted in March 2011 due to the earthquake and the effect of the tsunami. GDP contracted by 3.5% in Q1 of 2011. As Japan's economy has suffered two quarterly contractions in a row, it reentered recession.

The driving/contributing factors:

Currently Japan’s service sector forms about 70% of its GDP. The major service industries in Japan are banking, insurance, telecommunications, transportation, real estate and retailing. Manufacturing is the no. 2 sector in Japan contributing around 23% to its GDP. The manufacturing industry relies heavily on the import of raw materials and fuel. The major manufacturing industries of Japan are automobiles, consumer electronics, computers, optical fibers, optoelectronics, optical media, semiconductors and iron and steel. Agriculture contributes least to the Japan’s GDP (only 1.5%).

Output gap inflation and unemployment experience:

A comparison between...