Transcript PPT
THE ECONOMY OF JAPAN 日 本 経 済 Traditional Japan Source: Web Japan & Japanese Consulate General, San Francisco 2 2 Contemporary Japan “Cool Japan” Japanimation “KAWAII” 3 http://www.youtube.com/watch?v=i12bIqfRXJM Looking at Some of the Basics Geography • Four main islands: • Hokkaido (N) • Honshu (main island) – Tokyo, Mt. Fuji, Osaka, Hiroshima • Shikoku – Rural • Kyushu (SW) – Fukuoka, Kagoshima, Nagasaki • Most of the population is in Honshu, between the Kanto (Tokyo-YokohamaKawasaki) in the east and the Kansai (Kobe-Osaka-Kyoto) in the west • Tokyo – Yokohama has almost 25% of the population (over 33 million) • Close to 80% of the land is mountainous • Japan is poor in natural resources and flat arable land. it depends on imports, for example, for 99.5% of its petroleum 6 127,704,000 (2008) Population Population Density (per km sq.) 336.1 Population, share of 0-14 years 13.6% Population, share of 15-64 years 65.3% Population, share of 65 and over 21.0% Sex ratio, number of males per 100 female 95.9 Total fertility rate 1.37 (2009) Death rate (number of deaths per 1000 population 9.54 (2009) Infant mortality rate (number of deaths per 1000 live births) 2.79 (2009) Life expectancy at birth (total population) Life expectancy at birth (male) Life expectancy at birth (female) 82.12 (2009) 78.8 (2009)53 85.62 (2009) Net migration rate (number of migrants per 1000 population) Various Social Statistics (2008 -9) http://www.stat.go.jp/english/data/handbook/c02cont.htm#cha2_1 0.00 7 Nikkei Chart, 1980-2009 40,000 38,000 Peak of 38,915 in December 1989 36,000 34,000 32,000 30,000 28,000 Just over 9,000 in May 2009 26,000 24,000 22,000 First passed 9,000 in July 1983 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 2009.01 2008.01 2007.01 2006.01 2005.01 2004.01 2003.01 2002.01 2001.01 2000.01 1999.01 1998.01 1997.01 1996.01 1995.01 1994.01 1993.01 1992.01 1991.01 1990.01 1989.01 1988.01 1987.01 1986.01 1985.01 1984.01 1983.01 1982.01 1981.01 1980.01 4,000 8 Nikkei – Last 5 years 9 PACIFIC Exchange Rate Service http://fx.sauder.ubc.ca/plot.html 10 -1.0% -2.0% -3.0% 2008/ 1- 3. 2006/ 1- 3. 2004/ 1- 3. 2002/ 1- 3. 2000/ 1- 3. 1998/ 1- 3. 12.0% 1996/ 1- 3. Moving Average 1994/ 1- 3. 1992/ 1- 3. 1990/ 1- 3. 1988/ 1- 3. 1986/ 1- 3. 1984/ 1- 3. 13.0% 1982/ 1- 3. 14.0% 1980/ 1- 3. 1978/ 1- 3. 1976/ 1- 3. 1974/ 1- 3. 1972/ 1- 3. 1970/ 1- 3. 1968/ 1- 3. 1966/ 1- 3. 1964/ 1- 3. 1962/ 1- 3. 1960/ 1- 3. 1958/ 1- 3. 1956/1-3. Japanese GDP Growth (seasonally adjusted, % per annum over previous year) 15.0% Bubble Bursts: Peak 1991 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -4.0% -5.0% -6.0% -7.0% -8.0% 11 Japan GDP Growth Rate 12 Some Other Interesting Facts • Japan now has a far higher percentage of single women between the ages of 20 to 40 than the United States--higher than almost anywhere in the world except Scandinavia. • 80% to 90% of single Japanese women live with their parents, as do about half of the men in their 20s. Most pay little or no rent and do no housework. • One sociologist estimates that Japan has 10 million "parasite singles"--roughly equal to the entire population of Greece. Q1. What are the economic factors that affect these facts? 13 THE “BUBBLE” ECONOMY 14 Bubble Economy (How “Bubbly” Was It?) 1985 -1990 • Asset Price Inflation – Stocks - Nikkei hit high of 38,915 on Dec. 31 1989. Keep in mind it did not hit 10,000 until after 1985. – Land and Real Estate Prices – Prices more than doubled from 1987 to 1990. – Real Estate inflation more pronounced in larger cites • Consumer prices not significantly affected • Rapid economic growth 15 Land Prices 16 Japanese Urban Real Estate Prices vs Consumer Price Index Inflation 18 years! Commercial Real Estate —6 largest cities— CPI (inflation) 17 Japanese Foreign Investment Expands • Matsushita Group (Panasonic) > Universal Studio • Sony Group > Columbia Pictures • Mitsubishi Estate Group ->Rockefeller Center and Pebble Beach Q. What happened to these investments? 18 Looking at the Causes of the Bubble • Background – Strong growth in 1980’s and stronger consumer confidence – Financial Deregulation throughout 1980’s. – End of deficit spending by government – Main-bank relationships – Problem with trade deficits (led to Plaza Accord) – Expansionary monetary policy to counter Plaza Accord – Management poised for strong growth – Reaganomics (high interest rates in US) – Belief that Japan was becoming an economic superpower 19 The Low Cost of Borrowing • Interest rates were effectively 0% • Firms over borrowed • Projects that earned a mere 0% were approved • Banks over lent • Collateral or track records were enough – expectation that asset prices would always rise • Asset prices proved unrealistic • Projects didn’t earn 0% ex post • Banks eventually, however couldn’t collect on their loans 20 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 Proportion of Loans to Small Firms 0.6 0.5 0.4 0.3 Year 21 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 Proportion of Loans to Real Estate Developers 0.14 0.12 0.1 0.08 0.06 0.04 0.02 Year 22 BOJ Dis cou nt Rate Targ et Cal l Rate 6.0 0% Aug 30, 199 0 5.0 0% Ju l 1, 199 1 interest rate s ke pt h igh for 1 8 mon ths foll owing the "bub ble's" p eak 4.0 0% 3.0 0% Nov 1, 1986 fol lowing "Plaza Accord" 2.0 0% Sept 8, 1995 0.5 % dis cou nt ra te!! Christmas 1989 rate hike – "b ubbl e" pe aks – Feb 12, 199 9 "Zero Interest Rate Policy" co mmen ces May 31, 198 9 firs t an ti-"Bub ble" rate hike 1.0 0% Feb 23, 198 7 200 0/10 /22 200 0/4/22 199 9/10 /22 199 9/4/22 199 8/10 /22 199 8/4/22 199 7/10 /22 199 7/4/22 199 6/10 /22 199 6/4/22 199 5/10 /22 199 5/4/22 199 4/10 /22 199 4/4/22 199 3/10 /22 199 3/4/22 199 2/10 /22 199 2/4/22 199 1/10 /22 199 1/4/22 199 0/10 /22 199 0/4/22 198 9/10 /22 198 9/4/22 198 8/10 /22 198 8/4/22 198 7/10 /22 198 7/4/22 198 6/10 /22 198 6/4/22 198 5/10 /22 198 5/4/22 198 4/10 /22 198 4/4/22 198 3/10 /22 0.0 0% 23 Money Supply 24 Other Causes of the Bubble Malfunctioned “Safety Net” Bank of Japan (BOJ) Ministry of Finance (MOF) “Discretionary Guidance” Inefficient Monitoring of Banking System Some Reinforcing Factors Cross-holding share in Keiretsu system Expansion of real estate companies (Jusen) 25 Prolonged Aftermath • Impacts – Longest recession in post-war period. – Non-performing Loans – Major Bank Failure and Merges • Causes of prolonged slowdown – Delay in recognizing problems and in responses – Uncoordinated Actions • Covered Problems – Overprotected banks – Inefficient corporate governance and structure 26 Today’s Dilemmas • Monetary policy doesn’t work – Interest rates can’t be pushed below 0% – But prices are falling ==> real rates are positive • Banks (rightly) fear bad assets – Outstanding loans are shrinking – Little investment – “Liquidity Trap” • Fiscal policy is not working – Large government deficits 27 Percent 10 GDP 5 Real GDP Bu bble 0 Nominal GDP -5 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Inventory Industrial Production Shaded areas are recession periods After the bubble, economy looked up in 1996-97, 2000 & 2003-07. But economy fell again in 2008-09 due to declining global demand. Production 28 Japan’s Lost Decade (early 1990s-early 2000s): Why Did the Recession Last So Long? • • • • Long adjustment after a large asset bubble Non-performing loans (late policy response) Japan’s economic system became obsolete (?) Aging population and associated problems (pension, medical care, dissaving, etc) • Snowballing fiscal debt • People’s lack of confidence in the future • The China challenge (vs. “return to Japan”) Lack of political leadership to propose solutions, convince people, and implement actions 29 Policy Issues for the Bank of Japan Non performing loans --Credit crunch and mini bank runs in 1997-1998 --Slow policy response (1998-2000)—creating special agencies and public money injection for bank recapitalization Monetary policy for recovery --Injecting liquidity by buying up unconventional assets (corporate & bank bonds, etc): but the monetary transmission mechanism was broken (MBMoneyLending) --Zero interest rate policy (Feb.1999-Aug.2000; Mar.2001-Jul.2006; Dec.2008-) creating incentive for “yen carry trade” --Inflation targeting—debated but not adopted --F/X intervention to prevent yen appreciation (but without aggressive yen depreciation) 30 % 9 8 7 6 5 4 3 2 1 0 Bubble Zero interest rate policy 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Call rate (interbank shortterm interest rate) Percent 40 Money & bank lending 30 20 10 0 Excess reserves are -10 built up during -20 zero interest rate periods Monetary base Money supply (M2) Bank lending 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 -30 31 2005 2000 1995 1990 1985 1980 1975 1970 1965 1960 1955 China 25.00 Monthly Changes in International Reserves 20.00 (Proxy for F/X intervention) Buy Dollar (resist yen appreciation) 15.00 10.00 Percent 1950 0 2005 50 J apan 2000 100 1995 150 1990 200 1985 250 1980 300 1975 350 1970 400 International Reserves USD billion 2000 1800 1600 1400 1200 1000 800 600 400 200 0 1965 Yen/USD 5.00 0.00 Jan-80 -5.00 -10.00 -15.00 Jan-83 Jan-86 Jan-89 Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Sell Dollar (resist yen depreciation) Source: McKinnon (2007) 32 Debate on Fiscal Stimuli • During the 1990s, large fiscal spending was used to stimulate the economy. But there was no strong recovery, while the government debt skyrocketed. • Some argued for even bigger stimuli; others said that would only worsen the situation. • • PM Koizumi (2001-06) set limits on spending (infrastructure, welfare). PM Aso (2008-) returned to big fiscal spending to combat recession. Government debt in % of GDP 180% 160% 140% 120% 168% Bubble burst 100% 80% 60% 40% 20% Koizumi Abe Fukuda 33 Aso 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 0% 34 From Recovery to Another Recession? Main causes of recovery (2003-2007) --Strong foreign demand (US, China) --Decade-long corporate restructuring effort --Yen depreciation (up to 2007) Recovery was not mainly due to reforms or good macro policies Global financial crisis (late 2008-2009) • Traditional industrial exports (cars, electronics) which led recovery suddenly lost export markets. Remaining issues • Agriculture, services, distribution, finance remain uncompetitive. • Long-term problems remain unsolved - fiscal crisis, pension & medical reforms, aged but vibrant society, new energy…) • Koizumi deregulation & liberalization increased income gaps and created new poor). 35 Politics: The End of the 1955 Regime LDP dominance based on rural expenditure and support ? Two party politics with clear policy choice for voters • The last three LDP governments (Abe, Fukuda, Aso) have been weak and unpopular. • The opposition (Democratic Party) is not very popular or effective either. • In July 2007 election, opposition seized majority in the Upper House--“twisted politics” causes confrontation and slowdown • In Aug/Sep 2009 election, LDP loses 36 Recent Prime Ministers of Japan April 26, 2001 – September 26, Junichiro 2006 Koizumi September 26, 2006 – September 26, 2007 Shinzo Abe September 26, 2007 – September 24, 2008 Yasuo Fukuda September 24, 2008 – (September 16, 2009) Taro Aso (September 16, 2009 –) Yukio Hatoyama Photos from the Cabinet Office, and the Democratic Party of Japan 37 New Administration’s view on Japan-US relations • Japan-US Security Alliance in place since 1951 • Mr. Hatoyama assured President Obama that Japan-US alliance is the foundation of our foreign policy copyright: AFP/Kazuhiro Nogi 38 What do Japanese people think about current US-Japan relations? % 90 80.9 80 76 70 68.9 63.4 60 Good 62.6 Not Good 50 40 30 30.5 28.1 27.1 20 16 12.8 10 0 Oct, 1990 Oct, 1995 Oct, 2000 Oct, 2005 Oct, 2008 Cabinet Office, Government of Japan 39 Social Issues -Total Fertility Rate 40 Population in Japan by age Unit: 10 thousand 41 Japan's Population Age Structure 1,000 people 500 450 400 350 300 250 200 150 100 50 0 85 〜 50 100 150 200 250 300 350 400 450 500 85 〜 80 〜 84 80 〜 84 75 〜 79 75 〜 79 70 〜 74 70 〜 74 65 〜 69 65 〜 69 Born 1945-49 60 〜 64 60 〜 64 55 〜 59 55 〜 59 50 〜 54 50 〜 54 45 〜 49 45 〜 49 40 〜 44 40 〜 44 35 〜 39 35 〜 39 Born 1970-74 30 〜 34 30 〜 34 25 〜 29 25 〜 29 20 〜 24 20 〜 24 15 〜 19 15 〜 19 10 〜 14 10 〜 14 ５〜９ Born 1995-99 ０〜4 ５〜９ ０〜4 Female Male 42 Possible Scenarios of Population Change in Japan 43 Citizens' Welfare Cost and Tax Burden（％） 44 Type of Employment 2008 34.1% 65.9% 2003 69.6% 1998 30.4% 76.4% 1993 23.6% 79.2% 1988 20.8% 81.7% 0% 20% 40% Full-time worker (Regular staff) 18.3% 60% 80% 100% Part-time worker (Non-regular staff) Statistic Bureau, Ministry of Internal Affairs & Communications 45 A little Japanese “Free” + “arubaito” [ger. arbeit] =Furiitaa or “Freeter” 46 Freeter Job Attributes • • • • • • Limited or flexible hours Little Responsibility Low Paying Few or no job benefits No long-term commitment Undemanding work 47 Freeter Negative Impacts on Society • • • • • • Workforce with undeveloped potential Low contributions to taxes, pension system Increase poverty/homelessness Lack of independence Looming labor shortage Depressed birthrate 48