Japan faces a painful period of adjustment

Article Abstract:

The economic difficulties in Japan are the result of an over-appreciation of the yen and a too lax monetary policy. The appreciation of the yen starting in Sep 1985 increased the prices of Japanese exports, causing the current account surplus to decline from 4.3% of GNP in 1986 to 2.4% in the first half of 1989. The Japanese economy is export-driven, and the government stimulated domestic demand through an expansionary monetary policy to prevent an economic slowdown. The depreciation of the yen is pushing its value to equilibrium, and the Japanese economy is going through an adjustment phase as the yen is over-valued. The yen will continue to depreciate, interest rates will increase, and asset price inflation will begin to leak out. While Japan's long-term economic prospects remain excellent, the yen/dollar exchange could reach 180, consumer inflation increase to five percent, and interest rates reach over nine percent.

Prices and rates, Monetary policy, Yen (Japan)

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Switch to reflation feeds growth in Japan

Article Abstract:

Japan is expected to experience an economic slowdown in 1997. It seems to display several ingredients of a recession, including high unemployment rate, a scheduled increase in the consumption tax, a weakened banking sector and the lack of a strong political leadership. However, an economic recovery is not necessarily impossible. The economy is likely to be bolstered by the Bank of Japan's move to adopt a reflationary policy stance in the summer of 1996. Real growth of around 2% could be achieved in 1997 as a result of the ongoing feedthrough of the weakening of the yen, record low interest rates and the observable liquidity expansion into the economic growth equation. Economic expansion will depend largely on the resilience of consumer spending, which accounts for around 60% of the country's GDP.

Economic development, Economic indicators

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Japan grows by looking inwards

Article Abstract:

Japan's economy has continued to grow in recent years, despite adverse exchange rate movements, because the domestic sector of the economy has expanded to offset the losses caused by the less competitive export sector. Contrary to the popular conception of Japan as an economy driven purely by exports, exports account for only 13 percent of the economy. As the yen rose in value against the US dollar, Japanese officials attempted to compensate by reducing interest rates, which had the effect of creating a domestic liquidity boom. Exports fell off, but imports such as oil became cheaper in Japan.

Gross national product, Commerce

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