Tag Archives: Japan

Revised Blog 2: Exports Are Reliable For Japan

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Japan’s economy experienced a destructive recession in the end of last century. As a country could resuscitate its economy even after the horrible catastrophe of the Second World War, Japan should also be able to find a rapid way to make the recover this time. However, the progress was not so fluent. Actually, Japan’s economy are still in a disappointing circumstance nowadays. Though there are some signs and tendencies of reviving, Japan’s government still suffers tremendous pressures. So how to totally wake the sluggish economy up for Japan seems like a tough issue. Generally, relying on exports is a solution that people may suggest. Nevertheless, some experts have criticized that Japan is not able to recover its economy only by exports. Since there are more and more strong competitors, including China, Brazil, India, and Korea, for Japan’s exports. Seemingly, this claim is rational. Yet, with profound consideration, this criticize has some flaws. Actually, many Japan’s exporting goods are indispensable for the world.

Japan is famous of its delicate technologies. Many celebrated electronic products are coming from Japan, such as Toshiba, Panasonic, Canon, etc. These companies have expanded their business all over the world by their super precision for years. Even in China, which is a country having a poor relationship with Japan, almost every family has at least one Japanese electronic device. Moreover, the car brands like Toyota, Honda, and Nissan are extreme popular in China, US, and European countries. While talking about supercars, people might only have ideas of German or Italian brands, Japanese cars do have some competitive advantages cannot be replaced. Their durability and cheapness are the main reasons to explain why there are millions of loyal Japanese cars customers.

There is still another reason that experts consider Japan cannot rely on exports. US and most European countries all experienced essential crisis in the past several years. Even China presented weakness on its development of economy last year. It seems as if the economic situation is in a global recession period. This is definitely a bad news for Japan to expand exports. That inference is true. However, what need to be emphasized is the recession period is fading. US, China, and European countries all showed some efficient moves to amend the economy. In fact, Japan has already received some credits from that. “Exports rose 2.7% from the previous quarter, the biggest increase in four quarters, indicating that Mr. Abe’s weak-yen policy—the currency has fallen by around a third against the U.S. dollar since late 2012—is finally having the desired effect of significantly increasing exports. Exports to China, Japan’s second-largest export destination, in December totaled ¥1.27 trillion, the highest for a single month since December 2010. Exports to the U.S., its biggest market, totaled ¥1.4 trillion, the most since 2007”.

Furthermore, Japanese government also expressed the determinant to resurging their economy by adding fuel to exporting business. “IF YOUR first shots miss the target, keep firing. That seems to be the lesson in Japan, where the cabinet of Shinzo Abe, the prime minister, approved an emergency stimulus package worth ¥3.5 trillion ($29.1 billion) on December 27th to pep up the recession-hit economy. Yet what stood out was the diminished heft of the package. Nearly two years ago the first of three “arrows”, as the various parts of Mr Abe’s programme have been dubbed, was a fiscal boost of ¥10.3 trillion, followed by another spending package worth ¥5.5 trillion in April 2014. The other facets of “Abenomics” will now have to be exploited”. From that huge amount of capital injection, billions of dollars have been utilized to push Japanese exporting business forward. With high unsubstitutability and potent support from government, Japanese export’s spring will not be so far away.

Japan Progressing, Slowly

Japan’s economy is on its way out a recession, however, the recovery is taking slightly longer than predicted. Experts recently predicted that Japan’s economy would growth at a rate of 3.6% on an annualized basis through the first three months of the new year. However after recent figures came out, experts indicate Japan’s economy only grew 2.2%. This was well below expert predictions and is reason for concern. I believe Japan is on the right track and needs to raise consumer spending if it wishes to continue on an upward tend, however slow it may be.

While Japan’s economy did miss expectations, the economy did grow. The main cause of this was growing exports. Exports grew 2.7% from the previous quarter, mainly driven by exports to China and Japan. The weakened yen has a lot to do with this. As we have learned in class, when a currency depreciates relative to foreign currencies, exports become cheaper. China, Japans largest importer, and the United States, Japan’s biggest market, both took advantage of this and increased their purchases from Japan. However, with China and the Eurozone’s economies facing uncertainty moving forward, this is something that can not be counted on to maintain ling run growth. While exports are important, the yen will not stay weak forever and eventually Japan will need to find more sustainable ways to maintain growth.

As a recent Wall Street Journal article titled, “Japan Escapes Recession But Growth Misses Forecasts” points out, 60% of Japan’s GDP depends on domestic spending by consumers. The problem appears to be that wages are not rising as quickly as prices. With prices rising slower then wages, it makes spending more expensive as consumer purchasing power is diminished. The article states, “I was surprised by how weak household spending was,” said Shotaro Kuga, an economist at Daiwa Institute of Research, said of the fourth quarter results. “The economy is recovering—it’s just the pace of the recovery is less than forecast.” http://www.wsj.com/articles/japan-q4-gdp-worse-than-expected-at-22-1424044641. It appears that Japan is not too concerned about its recent growth as it appears they are in fact past the worst part of the recession. The economy has grown for two straight quarters which is obviously a good indication things are improving.

According to recent economic forecasts, experts predict Japans economy to grow 3.7% in the fourth quarter. The consumption tax increase from last April is what many believe lead to the Japanese recession. http://www.ibtimes.com/japan-economic-outlook-2015-economists-forecast-q4-gdp-expand-37-economic-growth-1817062. Japan should consider reacting these taxes if they wish to spur the economy. Even if they implement a tax cut that is not a big as the tax increase in April, they will net be collecting more taxes than they had been. If Japan fails to meet their fourth quarter growth forecasts as badly as they missed them so far, they might find things getting more difficult as 2015 continues. It will be very interesting to see what happens over the next few months.

 

Exports Are Reliable For Japan

Japan’s economy experienced a destructive recession in the end of last century. As a small country with relative huge population, Japan should be able to find a rapid way to make the recover.  However, the progress was not so fluent. Actually, Japan’s economy are still in a disappointing circumstance nowadays. Though there are some signs and tendencies of developments, Japanese government still suffers tremendous pressures. So how to totally wake the sluggish economy for Japan seems like a tough issue? Generally, relying on exports are a solution that people may suggest. Nevertheless, some experts have criticized that Japan is not able to recover its economy only by exports. Since there are more and more strong competitors, including China, Brazil, India, and Korea, for Japan. China should be the most significant one as its exports and GDP increased in a surprising speed for years. Seemingly, this criticizing is rational. Yet with profound consideration, this criticizing has some flaws.

Japan is famous of its delicate technologies. Many celebrated electronic products are coming from Japan, such as Toshiba, Panasonic, Canon. These companies expanded their business all over the world by their super precision. In China, which is a country having a poor relationship with Japan, almost every family has at least one Japanese electronic device. Moreover, the car brands like Toyota, Honda, and Nissan are extreme popular in China, US, and even in European countries. Though when talk about supercars, people might only have ideas of German or Italian brands, Japanese cars do have some competitive advantages cannot be replaced. Their durability and cheapness are the main reasons to explain why there are millions of loyal Japanese cars customers.

There is still another reason that experts consider Japan cannot rely on exports. US, most European countries all experienced essential crisis in the past several years. Even China presented a weakness on its development of economy. The economy situation is in a globally recession period. This is definitely a bad news for Japan to expand exports. That inference is true. However, what need to be emphasized is the recession period is fading. US, China, and European countries all showed some efficient moves to amend the economy. In fact, Japan has already received some credits from that. “Exports rose 2.7% from the previous quarter, the biggest increase in four quarters, indicating that Mr. Abe’s weak-yen policy—the currency has fallen by around a third against the U.S. dollar since late 2012—is finally having the desired effect of significantly increasing exports. Exports to China, Japan’s second-largest export destination, in December totaled ¥1.27 trillion, the highest for a single month since December 2010. Exports to the U.S., its biggest market, totaled ¥1.4 trillion, the most since 2007”.

Furthermore, Japanese government also expressed the determinant to resurrect their economy. “IF YOUR first shots miss the target, keep firing. That seems to be the lesson in Japan, where the cabinet of Shinzo Abe, the prime minister, approved an emergency stimulus package worth ¥3.5 trillion ($29.1 billion) on December 27th to pep up the recession-hit economy. Yet what stood out was the diminished heft of the package. Nearly two years ago the first of three “arrows”, as the various parts of Mr Abe’s programme have been dubbed, was a fiscal boost of ¥10.3 trillion, followed by another spending package worth ¥5.5 trillion in April 2014. The other facets of “Abenomics” will now have to be exploited”. With high unsubstitutability and potent support from government, Japanese export’s spring will not be so far away. Moreover, the potent export will finally make a magnificent contribution to economy for Japan.

For Japan, Nuclear Energy is a Touchy Subject

Naomi Hirose, the president of the infamous Tokyo Electric Power Company (TEPCO), recently expressed his optimism in a Wall Street Journal interview that his company was “making progress in persuading the local community to accept the restart of the Kashiwazaki-Kariwa nuclear power plant on the Japan Sea coast”.  The power plant in question was shut down in the wake of the Fukushima Daiichi nuclear disaster, which not only devastated the public image of TEPCO but shattered the already-shaky faith that the people of Japan had in nuclear power.  In terms of the technical process involved, restarting the plant’s reactors is a relatively simple process.  The real barrier to resuming operations is widespread public resistance to nuclear power in Japan – polls conducted by Japanese news publications have found that roughly 80% of Japanese citizens are now anti-nuclear, as reported by the Christian Science Monitor.

This was obviously not always the case.  The nation was once a leader in the field of nuclear power: it created its nuclear program in 1954, the very year that the world’s first nuclear plant opened.  Prior to the Fukushima incident, Japan generated 30% of its energy via nuclear plants, and aspired to reach 40% by 2017 (per the World Nuclear Association).  Nevertheless, it is reasonable that the Japanese people are now so skeptical, particularly of TEPCO, which was found to be ill-prepared for natural disaster.  While Japanese authorities should be wary of companies trying to jump the gun and restart production to save their bottom line, restarting nuclear production could provide the jumpstart that a lackluster Japanese economy needs.  The country recently emerged from two recessionary quarters with disappointing growth numbers, per Reuters, and much of that is due to their new energy identity as a nation dependent on fossil fuel imports.  As seen in the graph below, since Fukushima occurred in 2011, the country has fallen into a trade deficit.

Japanese Trade Deficit

 

Japanese wealth is leaving the country, their electricity prices have skyrocketed (up about 20% for consumers and 30% for businesses, per the Washington Post), their energy companies are bleeding out, and they are now completely import-dependent for energy, all while the country’s massive investments in a network of nuclear plants, which could solve all of the above problems, sits by idly.  Japanese legislators have indicated that they wish to make nuclear production a part of the country’s future at some point in the future, as described by the Japan Times, but they have been vague and slow to make concrete decisions.  Some may see the cheap oil market as reason to postpone nuclear production, but the process of inspecting and approving the country’s plants to re-open could take years to complete, by which point most certainly expect oil to have recovered.  In the mean time, Japan should work on public media outreach programs to raise awareness amongst its populous as to the benefits nuclear power could have for their country, with new stricter regulatory standards in place.

 

 

 

 

 

Abenomics and the BOJ’s challenge of being a credible central bank

Abenomics — a bundle of economic policies designed to get Japan out of the long-lasting deflation and stagnation — has been a center of discussions regarding Japanese economy ever since the Prime Minister Shinzo Abe took his office. Among “three arrows” of policies (monetary policy, fiscal policy and structural reform), many observers should agree with the idea that the monetary policy has been playing the biggest role thus far. For instance, the surprise move by the BOJ last October made the yen exchange rate (against the US dollar) depreciated by roughly 1.4 percent in one day, which should help to raise inflation rates via higher importing prices. Since the limited fiscal resources is available given the huge national debts and little real progress has been observed from structural reform side, monetary policy will continue to play an important role in Abenomics this year.

Given this situation, Japan’s policymakers should worry about the survey result released last week. This survey, which is done by the BOJ, showed skepticism raised over the BOJ’s ability to stimulate the economy. Being asked the question “Do you think the BOJ is credible?” 10.7 percent (8.8 percent in six months ago) of the survey respondents answered “no”.

Why is this result so worrisome? A key to answer this question is the “Fisher equation” which basically says the real interest rate equals the nominal interest rate minus the inflation expectations. Since a central bank can stimulate economy by lowering the real interest rate, it can be achieved either lowering the nominal interest rate and/or raising the inflation expectations. However, one should remember the important fact that Japan is a “pioneer” of zero interest rate policy, which means the BOJ cannot lower the nominal interest rate any further unless it decides to implement negative interest rates policy. Therefore, at least the Fisher equation suggests, the only way that the BOJ can lower the real interest rate is through the inflation expectations channel which hinges on the credibility of the BOJ. In other words, it is really important for the BOJ (and of course PM Abe) to maintain their credibility that they continue to have a strong will to achieve 2 percent inflation to keep the real interest rate low enough to stimulate consumption and investment.

Yes, it is just a survey result. But Japan’s policymakers should take this seriously since they will have to rely on the monetary policy, and maintaining expectations is far difficult than maintaining the nominal interest rate.