W3&4 - The Japanese Economy Flashcards
When was emperor Meiji restored?
1870
Why is August 15th independence day for many countries in Asia?
Because this was the day Japan announced unconditional surrender
Why did Japan benefit from the Korean war?
It created enormous demand for Japanese products. The US military sourced their goods from Japan to fuel the war effort
When was the Edo period in Japan?
1603-1868
When was the Meiji restoration?
1853-1868
What happened during the Edo period?
Urbanisation and commerce developed leading to the collapse of the feudal system as trade increased, increasing the power of wealthy merchants relative to the samurai as they did not have as much money.
Why were merchants initially at the bottom of Japan’s feudal system?
This is the bottom largely due to Confucius culture as it neglected culture and trade. Influenced by Chinese cultural values
When did the Americans arrive and what did they do?
Western vessels were known as black ships and they demanded trade
When had the British and Portuguese been in Japan since?
The 1600s
What year was the Meiji restoration?
1868
What happened during the Meiji period?
- Japan began to industrialise setting up institutions such as a constitution, central bank and public infrastructure
- Zaibatsu emerged
- Rapid technological progress
- State run heavy industry to support military ambitions
What is Zaibatsu?
Family controlled corporate conglomerates which were vertical monopolies with their own banking and industrial subsidies. A holding company on the top controls all subsidiaries
What are some examples of Zaibatsu?
Nissan, Mitsubishi
What happened to Zaibatsu after WW2?
They were largely dissolved after WW2 during the US occupation
What were the Meiji liberal reforms?
Sweeping liberal reforms that allowed social and economic mobility:
- Removed the caste system and feudalism
- Internal trade became free
- Property rights established
- National banking system based on Americans established in 1882
- Entry to professions made available to anyone
Why was the loss of colonies after WW2 so significant to Japan?
Loss an enormous amount of productive capacity which held a lot of their foreign investments most notably in Manchuria
What percentage of the Japanese mercantile fleet was destroyed in WW2?
80%
How many Japanese casualties were there in WW2?
2.5 million
What reforms were imposed by the Americans during occupation?
- Dissolution of the zaibatsu
- Land reform
- Labour relations reform
- Liberal reforms
- New constitutions
- Education reform
What was the Japanese constitution influenced by?
The one introduced by the Meiji reforms was influenced by Germany but was replaced by American occupation to a US influenced one
What was the Dodge line?
Financial and monetary policy and economic reforms
What did the Dodge line involve?
- Liberalisation
- Wage & price control to reduce inflation and government debt,
- Efficient tax collection
- Fixing 360 yens per USD
What is the Yoshida Doctrine?
Reliance on the US protection and western economic ideals. This shaped Japanese foreign policy during the cold war.
What was the impact of the dodge line?
It induced stagnation, deflation and high unemployment in 1949 but enabled management to take charge of operating enterprises as well as restoring profitability and labour productivity in 1950-51
Why was the timing of the Dodge line important?
The timing could not have been better as it well prepared the economy to meet the large US demand for war materials in Korea
What is the consensus of the efficacy of the dodge line?
The Dodge line’s success is owed to the Korean war
Why was the Korean war a saviour for Japan?
The flow of US dollars stimulated production by Japanese suppliers launching Japan’s recovery providing considerable impetus to many industries.
What two industries in particular owe the start of their success to the Korean war?
The Automobile industry from the army and the cotton spinning and synthetic fibre industries
How much did Japanese Iron and steel industry expand by during the Korean war?
30%
How did Japan’s foreign exchange reserves change during the Korean war?
They increase four-fold
When was the high-growth period in Japan?
1952-1975
What did Japan benefit from from the US?
US security assurances saved Japan’s fiscal budgets
What was the MITI?
The ministry of international trade and industry
What did the MITI do?
It helped with technology adoption and imposed export discipline
How did foreign demand impact Japanese growth/
It was a major source of growth with average annual export growth of 15% over this period
What was Japans growth rate between 1955-1973?
9% over an 18-year period
Was such strong Japanese growth between 1955-1973 mainly due to export growth?
Export growth was a major contributor but growth in domestic demand played a prominent role driven by a high rate of investment, 30 to 40% of GDP
What happened to Japan’s current account after 1980?
Large and persistent current account surpluses
What was the 1985 Plaza Accord?
Agreement in the G5 of a depreciation of the Yen and the DM
How did the value of the Yen change relative to the dollar after 1985?
Went from 250 to 150 Yen to the dollar in just eight months until May 1986
What did the appreciation of the Yen mean?
It meant that Japan was no longer as competitive so American buyers didn’t want to buy as much reducing demand
What caused the Japanese Asset bubble from 1986 to 1991?
- The expansion of domestic demand by government policy
- Aggressive fiscal spending
- Aggressive monetary easing through QE
- Excessive money supply relative to available goods and services
How did residential land prices change in tokyo between 1983 to 1991?
They increased 2.5 times over
When did Japan’s asset bubble burst?
1992
What were the consequences of deflation in Japan?
Deflation leads to a collapse in asset markets. When you borrow money, you need a form of assets as collateral for lending. When the value of your collateral decreases, banks stop lending meaning credit conditions squeeze, they are unable to lend as much. Firms couldn’t borrow so collapsed
How did the asset price collapse lead to the long-term stagnation of Japan?
Keiretsu companies are very hostile to foreign investment meaning they were more united together around a single bank. The problem with this is while it protects to hostile takeovers, when there is a shock, the whole system collapses. The corporate structure in Japan was vulnerable to systemic shocks
What were zombie firms?
Companies that were not productive that receive life support from the government and non performing loans supported them.
Why are the zombie firms bad for the economy?
These companies hinder innovation and entrepreneurship. For the economy to grow you need innovation. You cannot innovate when there are a lot of barriers and zombie firms.
Did fiscal policy in Japan work?
It led to crowding out of private investment. On top of this the fiscal multiplier was close to zero with low capital productivity meaning the money was effectively wasted
Why is an aging population an issue?
Unless the aging population is offset by an increase in productivity, you cannot achieve economic growth as shown by the equation (formula sheet)
Why is the issue of an aging population worse in Japan?
Their stance on immigration
What are some of the issues with the Japanese labour market?
- Rigidity and seniority not productivity based wages
- Non-regular workforce is very large
- Difficult for women
- Downward flexibility in wages for business
What percentage of GDP is Japan’s public debt?
Over 200% of GDP
What percentage of Japanese government debt is held in Japan?
95% distinguishes it from places like Greece
How is the real interest rate found?
Nominal interest rate - inflation
What is the upper-bound for government debt?
The new issue of bonds cannot exceed the total saving of that year plus the amount of the private sector financial assets that can be used to buy government debts
What is the issue of issuing government debt that is mostly bought by your own citizens?
When the government borrows money, the private sector investment gets crowded out as they have to compete with the government
What did Abenomics consist of?
Three arrows
What were the three arrows of Abenomics?
1) Monetary quantitative easing, with 2% inflation target
2) Short-run fiscal expansion and long-run fiscal consolidation (reduce in long-run)
3) Micro-growth enhancing structural reforms
What was the aim of negative interest rates?
Negative interest rates tried to incentivise spending more and not to save. This penalises you for saving and not investing the money
How did Japanese policy makers try to increase the tax burden?
Increase in consumption tax gradually from 5% in 2014 to 10% in 2019
Has Abenomics worked?
- Inflation is around 2% target
- Non-financial firms have more cash and profits
- Employment has risen, particularly in women
What percentage of government spending is spent on servicing debt?
24%
What percentage of the government budget is made up by taxes?
46.5%
