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Factors Behind The Economic Success Of Japan Economics Essay

This assignment will assess the factors behind the economic success of Japan. These factors will be assessed through units of time throughout the Japanese history and how these factors of success have also contributed to the economic difficulties that Japan has faced over time. We will start with a brief introduction to Japan as a nation, its cultural practices to language and arts. We will then progress onto discuss the economic success and difficulties that Japan has faced over time

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Japan is situated next to the East Coast of Asia; it is four main islands which are Kyushu, Shikoku, Honshu and Hokkaido. It is also surrounded by many a hundred little tiny islands. Over all Japan has mountain coverage of over 85 percent of its islands(HTAV, 1997)..

The Japanese have strong cultural beliefs and values ranging from the traditional cultural clothing such as the Kimono (which translated to English means something one wears) to the traditional Japanese cuisines. Today’s Japanese people enjoy a varied range of traditional foods such as miso soup, rice and seafood (Kennedy, 1963).

Japanese as a language is produced and written using three different types of combined scripts which are Kanji the Chinese characters, Katakana and Hiragana the two syllabic type scripts. The language uses calligraphy which is complicated; this is also true for many other East Asian Countries when concerning the writing text, but with the Japanese written text this is seen as a traditional art form and not just for transferring written information to one and another

Art plays a large part in Japanese culture, the most common type of art still in existence today is painting and painting has played a big part in Japanese culture for many a hundred years, they still use native traditional painting techniques today. These Japanese painting techniques are used in poems, stories or even just a single painted character.

The government of Japan is a constitutional monarchy which means the powers for the Emperor are limited. The Prime Minister for Japan holds the most power followed by his elected members of government. The only stable party in Japan is the liberal democrats which has been together for over 40 years and has been in power from the beginning of its party in 1958. The clean government party or has its known Komeito is a close competitor but only holds less than ten percent of parliamentary seats. The other political parties include the socialist party, communist party, social domestic party and the liberal party.

The Japanese economy is strong and very competitive with the areas that have links with trade and is overall one of the biggest economies in the world. The factors behind Japans success is mainly down to exporting. Japan exports many products ranging from electronics, cars and computers with its main and the most important trading partner being the USA which in turn imports more than a quarter of japans exported products.

The economic success of Japan is based on its ability to combine the west with its own traditional lifestyles. Japans success within the free markets of the world and its speedy ascension to be the world’s toped ranked and most powerful is a subject open up to debate. Before the arrival of Commodore Perry during 1853 Japan was stagnated due to isolation and had receive a huge economic blow due to losing World War ll. But success came to the Japanese economy from a number of different attributes. These attributes range from social classes breaking down due to the creation of the Conscript Army and the victory it had gained against the Satsuma Rebellion and the manufacturing of its stable and low interest rates after World War ll which was to stimulate its venture capital. Yet these economic success factors could be the attributes of the importation from the West, for example western social theory, economic practises, and technologies combined with the values of the State Shinto, Bushido and other Japanese traditions. The exception to note here is the major reform mainly came from its upper echelons of the society, which in turn means the government. To contrast the majority of reform in Europe was from the centre up, due to the signing of the Magna Carta, October Revolution and in turn show where limited power from the monarchy is pushed from below. Japans economic speed of ascension could be attributed the novel transition which was instituted by the power of democracy. When looking into the Japanese economic susses there are two main periods which have great importance which are post World War ll Japan reconstruction and the Meiji Restoration, it is during these periods that Japans economic growth was at its greatest, this in turn paved the way for Japan to become a powerhouse for modern economics.

To understand the factors behind Japans economic success we must first look at its history. Due to the creation of the Meiji industrial economy post war economic growth prevailed. Looking closer to the periods before the Meiji period was the Tokugawa period from 1630 to 1860, Smith (1997) suggests that during these periods in Japans history Japans economy had unparallel growth and went through significant structural change. The Tokugawa period was set up using obligations and rules for all aspects of society and it was this period that produced rapid urbanization.

During the Tokugawa period education was also a big factor towards economic development. Japan adopted a belief system from China which was a trait of Confucianism which had relevance to learning through education (Smith, 1997). Education spread fast to the upper classes such as Merchants and Samurai, but also to the Artisans and Peasants. During the Tokugawa period in 1850 about 40% of all boys and 10% of all girls where educated, this is huge compared with other East Asia Societies. Smith (1997) stated that during the Tokugawa period Japans economy became familiar with bureaucratic direction which was in turn directed through educated people.

During 1968 the Meiji Restoration began and the old Tokugawa ceased to exist and Japan began to change. In the Meiji Japan it began to industrialise due to the western countries already being industrialised. This was due to private investments and through enterprise which began the industrialised process. The industrial backbone came from the Zaibatsu. Zaibatsu are financial and industrial conglomerates. They had government help and support which included government subsidies benefits from selling of factories owned by the Japanese government. Mitsubishi, Mitsui, Yasuda and Sumitomo were the first of the Zaibatsu, Japanese growth due to industrialisation was slow to start and Japan depended on the USA and Europe for its manufactured goods machinery. In 1915 industrialisation began to boom and this was because World War I had begun.

During the war Japan had been cut off from Europe and its manufacturing goods which gave the Japanese manufacturers the opportunity to progress with manufacturing. Now Japanese manufacturers could broaden the products they manufactured and progress into the markets they imported from European countries. The manufactured Japanese goods resulted in product net domestic growth of 61.5 % during the periods of 1910 to the 1920s.

In the 1920s Japans war time manufacturing economy was in recession but stating the above during the 1920s was a big part in the economic success and development of Japan. During the 1920s the economic development of Japan began to move into different types of roles with changes if industries taking place. A main development was a better source of electricity which in turn was named the hydroelectric plant. The Hydroelectric plants made better use of the geography of Japan compared with the other sources of electricity. This new source of electricity made the way for new industries such as the aircraft industry, electrical products industries and the radio industry, but the most important industry which was set up in the 1920s was the development of computers and information communication technologies stated Smith (1997).

Not so long after World War l, Japan had an economy which was dual structured and this is still true in today’s Japan. A dual structure is when a company or organisation is capitalized and has access to all the latest foreign available technologies with a workforce who is well paid and highly skilled. But, opposite Japan has another side to the economy structure. The oppose side has medium and small companies or organisations with its duties being mainly subcontracting for the bigger and more advanced organisations. They don’t have the latest technologies like their richer counterparts due to lack of capital and they provide low skilled workers who receive low wages, also the major part of today’s Japan work for the smaller or medium size companies Smith, 1997).

During 1929 to the year 1930 Japan and the rest of the world had hit hard depression. This depression changed the Japan economy and as a result Japan became militarized as a state with its economy being shaped to militarisation which resulted in a growing demand for services and goods from its military, which in turn stimulated the manufacturing industries in Japan through both technologies and production suggest Smith (1997), but half of Japans manufacturing was in the heavier industries and this does have a negative effect on Japans economy later on. There where Zaibatsu developing during this period with the main one being Nissan. During this period the economy had many flaws with the most noticeable one being that the economy was based mainly on the expansionism of the military with the Japanese national budget being used to expand the military.

During World War ll Japan became an allied force but after Japan had been defeated in the war it incurred great costs. World War ll devastated the Japan economy and Japan as nation. Kosaka (1972) states that by the end of the war 8,000,000 of the Japanese where wounded or dead with the costs involved in the war consuming almost half of the nation’s wealth. During this period Japan had lost its coal production and its rice harvesting was poor, it didn’t have access to raw materials like it use to and inflation was increasing fast and on top of all this Japans unemployment rate was high.

This in turn started the economic cycle of development during its occupied period. The USA occupied Japan during 1945 to 1952 with instruction to take no action to revive Japans economy stated Smith (1997). The other USA instructions for this period where to stop the Zaibatsu which were accused of being the main cause of militarisation between 1930 and 1940, yet during this time the Zaibatsu was the driving force and the centre of Japans economic development. During 1947 the USA made changes to its occupying policies, this was mainly due to the changes in the decision making structure of the USA and to ease the costs mounting against the USA The changes led to less pressure on the Zaibatsu and in turn created a new centralized economy group named the Keiretsu.

The policies which were implemented during the USA occupation didn’t help the Japanese economy until the Korean War started and then it started to take off. It was at this point the dodge line was placed into the economy which then began to help the economy. The Korean War started in 1950 and ended in 1953. The reason behind Japans economy boost at this time was because they supplied the USA with weapons of war and supplies to the US army fighting in Korea, suggest Smith (1997). This in turn contributed up to $930 million into the Japanese economy. The war also put the Japanese car industry into action. This was also down to the USA as the Japanese had duties to fixing the US armies military vehicles. Japanese exports began to increase in value on the international markets with all of the above leading to Japan importing its new technologies from the west.

The war in Korea led to changes in the Japanese industries with most of the new policies focusing in the modernisation of industries, so in turn this will make Japan competitive internationally and reduce costs stated Smith (1997). This was the start of the industrial rationalization process. As the different industries rationalized many new industries where born. An example is with the steel and an iron industry was accompanied by domestic appliance manufacturing and the Japanese car industries (Smith, 1997). Japan at this time changed its production and management methods and began to implement the methods into larger industries from the period 1950 to 1959. This is based on quality control expert’s ideas from the USA It was these new methods that led to Japan producing top high quality manufactured products and goods. The methods which have been discussed above have been adopted by other industrialised countries.

The Japanese government’s involvement during this period of time was neither minimal nor large but they did play a role in the economic growth. An example can be seen with the Ministry of International Trade and Industry (MITI). The MITI was put together before the war but in turn didn’t impact on the economy until after the war. One of the main things the MITI established was over-loans, which was basically banks lending money for face value of a company and this was made possible by the Japanese government carrying all the risks.

The next period in the Japanese economic development as between 1960 and year 1973, Smith (1997) suggests this period was the “Aura of a golden Japan”. The tremendous amount of growth during this period has been named the Japan Incorporated and this decision making model is still popular in Japanese Politics Today. It is largely based on bureaucracy, big business and conservative politics ideas, these three factors should all work in cooperation with each other. The main reason why this idea works and holds in place is due to the goal of economic growth they all want to achieve. It is the relationship that exists between the three factors that that “plans and co-ordinates grand strategy for Japan’s economic development and which greatly enhances the abilities of economic bureaucracies to shape Japan’s economic future” (Smith, 1997). I should point out that it isn’t in agreement that the Japan Incorporated does actually and accurately describes today’s politics in Japan and it has been stated by Kenji Hayao (1997) that the above model was more true to the 1960’s and not in today’s times. In today’s Japanese structure it is more sectionalized or fragmented and Hayao (1997) states that “those who see the current system as fragmented believe that, though the cohesive, united view may have been accurate in the 1960’s”. It will never become clear to what extent these three groups are connected.

According to Smith (1997) during 1953 and 1971 Japanese investments were very high and this was a most important method of economical growth. These investments made by the private industries made it possible for Japan to trade in international markets and through the investments came access to the latest technologies and technology knowledge. The investments became possible through over-loans and other conglomerates which provide finance to its members of its group. These investments meant by 1967 Japan no longer need to import the technology because they were now developing and researching their own technologies, but in turn this had a negative economy effect on growth. This was due to the development costs associated with technology but this wasn’t the case when they imported western technology which they improved upon without any costs.

In 1973 the golden era came to an end due to the oil crisis. The oil crisis had hit Japan hard, Smith (1997) stated that “Japan was hit harder than any other industrialization because it went along with its internal economic problems and the end of stability between the world major currencies”. During 1973 and 1974 inflation with in Japan doubled and there after the Japanese economy began to change and their economic rates of growth slowed down significantly. Also at this time there was a gap in technology between Japan and other industrialized countries. Japan last in changes meant that its industries where in fact less competitive. This was due to the other industrialized countries such as Taiwan and South Korea having lower rates of pay than Japan had. Business and the government during 1973 started to look into technology as a means to obtain economic growth. This implemented a change in the governments system for Japans economic development. Before the year 1970 the economy was based on domestic markets, after 1973 exports had become important to the Japanese economy, an example can be seen in the Japanese car industry. Shortly after the world’s oil crisis the world developed ideas on how to save oil. During this time Japan develop smaller oil sufficient cars which had come into demand, these smaller cars where the Japanese speciality. These and many other factors participated in Japan during 1979 overtaking the USA in car production, this was a world first for any country states Smith (1997). Even thou Japans economic speedy growth had been stopped by the oil crisis they had shown great flexibility and resilience so the next oil shock during 1979 Japan had a sound knowledge and basis to overcome the problems (Stokes, 1975).

From the 1980s to today’s Japan it has maintained continues constant respectable economic growth, but most growth was due to the purchasing of overseas assets and exporting overseas. During the middle of the 1980s a phenomenon was born which had been named the Bubble Economy. This was due to the extra large amounts of funds in the economy banks, the banks started to loan out money for purchasing shares and land, for these reason local and foreign investments in Japan were at extremely high levels. The property prices in Japan doubled and doubled again during one calendar year and in turn the consumer spending patterns had started to boom. Smith (1997) suggests it’s a time which brought Japan well into real estate world market, auction rooms and resorts.

The problems of the Japanese economy which they face today are the resulting consequences of the policies and economic events of the past. As of the post war period until the period up to 1990 Japans main goal through its policy makers was to maintain a stable and strong economic growth rate.

Throughout the 1980s the Japanese Yen was experiencing appreciation significantly as a resulting from the plaza accord. The appreciation had impacted in the traditional Japanese manufacturing sections as this made Japan less competitive in the international markets. During the period of 1985 and 1986 the growth rates of the Japanese economy was reduced by 4.4% to just 2.9% (EIU, 2000).

The Japanese banks then quickly implemented policy changing measures to reduce the slowing down of the economy and made reductions of the official rate of discount to 2.5%. The Japanese government also produced a large package for spending to accelerate the growth of the economy (EIU, 2000). The successfully implemented measures which were in place to restart the economy were in fact successful, but did result in high inflation which in turn made a bubble in the asset prices. During the periods of 1991 to 2002 Japan had suffered from three recessions which have been classed as one single recession and this has been known as the Great Depression suggests Flath (2005).

From the 1990s to the end of its century, deflation and unemployment had been the main problems of the Japanese economy. The rates short term were decreased by 8.3% during 1991 to 0.48% in the middle of 1999. The FBRSF (2000) suggest this had created an effect know as the liquidity trap, this is when the interest rates cant become lower and cash has become the desired asset for business transactions, which in turn made monetary expansion virtually impossible.

The Japanese economic expansion had started once again during 2002. This enabled the Japanese to overcome the impacts of the 1990s collapse and the following recession. As of the last quarter in 2003 the economy growth grew by 1.7% and in turn gives the indication that Japan is on the right road to recovery states Diaz (2004).

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The official reports from the government of Japan suggest the expansion is mainly produced by the increase with exports and the higher corporate investments volumes which has been produced by increasing Japanese confidence in the future markets. Exports had increased to 4.2% in 2003 and corporate investments had also grown to 5.1%. Expenditures for households which is around the 60% mark of Japans GDP had also shown recovery signs during the years 2002 and 2003 states Diaz (2004).

From 2004 to 2005 there has been mixed news reports which are contradictory from the optimism of 2004 to the pessimism of 2005 as of when the provisional numbers had been published for the final quarter in 2004. The figures showed a reduction in GDP for that period, which meant that Japan had suffered from three quarterly reductions in the nations income. Then during March the official revised set of numbers did bring hope by illustrating a positive GDP.

The final GDP growth of 2004 was 2.7% with Japan presenting similar expressions as Belgium, Spain, and Canada. These countries were in a cycle of growth at the time. This 2.7% does represent the largest expansion in Japans economy as of 1996 and this is made more important after considering the country has suffered from the second and third quarters for that year. This recovery had been the result of exports which had grown to a very impressive 14.3% for that year, also the non private residential investments had grown by 5.9% states Bustelo (2005). But staing that private consumption continued to have very limited growth, which only achieved 1.5%, this was only a little bit better than in 2003 which was caused by employment improved figures.

Japanese increased exports is a significant achievement when considered with all the different odds such as the appreciation of Japans yen which had which did reach a five year maximum in 2005.The increase in exports can be explained with the export sales for East Asia which is 25.5%, Europe which is 21.8% and the USA which is 9.8%.

It is important here to mention that the improvements with the Japanese economic performance had been achieved even thou asset and goods price reductions continued to reduce. The price consumer index had fallen during 2004 and this is the seventh year in a row. The fall was less importantly pronounced than the years of 2004 of 0.1% to 2002 of 0.8% which can be seen as the slow reduction of deflationary pressures. Analysts suggest that the increases in commodity and oil prices which were used in conjunction with manufacturing processing has very limited the Japanese capabilities of breaking the cycle of deflation.

The strong growth in the economy has continued to expand its GDP due to the Japanese exports but the most recent growth is led by domestic private spending by investments and consumers state Country Watch (2008).

Even thou Japan has economic success especially with the recovery policy making which recovered the economy, Japan is now facing more significant difficulties for the future which is a result from Japans domestic conditions and many other external factors facing the whole global economy. During the first part of 2007 the GDP had grown at a rate of 1.5% which was a lower figure than originally expected and following this in the second part a contrition which was 1.8% and suggest that Japans economy is at risk of going into recession.

The recent growth in Japan again has come from exports, which in turn is benefiting from the competitive conditions which have been created from the weak Yen. The Business Monitor International (BMI) (2009) have stated that a slower growth for China, USA and Europe will in fact limit the international demands for importing Japanese products and goods. The BMI have also stated that the Yen appreciating as the high saving and the high liquidity proceed to moderate and in turn has reduced Japans competitiveness with exports.

Some of the analysts have said that Japan is failing to completely extract itself from its deflation which had it trapped in the 1990s. Lately Japans consumer prices have been lower than usual and are in need or hikes in rates suggest the BMI (2009). The domestic goods are likely to increase continually for some time to come with this being because of the rises in commodity prices internationally. The changing of the CPI forecast to continue with a positive future trend due to the oil price rises and the food production where all in all demand and supply is balanced state BOJ (2009).

The main factor which consists in the Japanese economy is the prospect of future rises with tax which is aimed at the controlling of the Japanese debt and deficit. The Japanese gross debt has now reached dangerous levels and is currently sitting around 160% of its GDP and is continuing to grow at an average of 8% per calendar year.

Japan does face many challenges in its future which consist of the improvement of its labour reforms, also Japan as a country is up against a the working age of its population is in decline, what this means is Japan is facing a shortage of labour workers due to the shrinking of its labour force because of the age and the working ethic risks which involve Japan having the longest amount of hours worked by any one single worker compared with the other labour forces in Asia.

In conclusion it’s easy to see that Japans economic success throughout the different eras of time has mainly come from exporting and manufacturing products for the consumers abroad. Japans methods of fusing the west with its own traditional values has made the way for Japan to be successful in the international arena, but at the same time many global investors state to stay away from Japan as it has high national debts and is considered to be a museum piece of a failed economy, which in turn the state gives low returns on investments.

But as Japan has failed in parts of its economy it has also been successful in other parts of the economy from a successful economy management to the corporate business policies and the legal system. Japan has also seen great economic success with producing heavy manufactured product such as cars, for example Nissan is a popular car for westerners which is made owned and produced in Japan. One final concern with the success of Japans economy is due to 70% of Japanese workers being employed by medium or small sized companies which are underperforming and are planning to cut its expenditure capital while the larger organisations are planning to increase its investments, this in turn has progressed to the lenders not wanting to lend to medium or small companies which in turn can have an adverse effect on the economy.

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Hastings, Terry. Japan: A Student Handbook. Collingwood: HTAV, 1997

Malcom Kennedy. A Short History of Japan. New York, Mentor Books, 1963

Hayao, Kenji. The Japanese Prime Minister and Public Policy. Pittsburgh: University of Pittsburgh Press, 1993.

Smith, Dennis B. Japan since 1945: The Rise of an Economic Superpower. New York: St. Martin’s Press, 1995.

Smith, Patrick. Japan a Reinterpretation. New York: Vintage Books, 1997.

Katsuro Sakoh. Cato Journal, Vol 4 No 2 Japanese Economic Success: Industrial Policy or Free Market, Cato Institute 1984

Randall Morck and Bernard Yeung, Japanese Economic Success and the Curious Characteristics of Japanese Stock Prices. Hitosobashi, Hitosobashi University Economic Dept, 2006

Sadakazu Tanigaki (2006), Japanese Economy Revived: Challenges and the Way Ahead, Japan Society, New York USA

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Bank of Japan – BOJ (2008), Monthly Report of Recent Economic and Financial Developments, Bank of Japan, Tokyo Japan.

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