JAPAN Team #12 Colton, Brett, Ryan, Lee 日本

OUTLINE Background Current Economic Situation International Aspects Special Problems The Future…

JAPAN – Background Land mass comparable to California 62 nd largest nation by land area 10 th largest by population. 127,463,611 total population (July 2006 est.) Strategic Geographic Location

JAPAN – Background Limited natural resources Fish – only real major available natural resource Government structure: Constitutional monarchy with a parliamentary government Shower before entering baths in a bathhouse!

Modern History Inflation, unemployment, supply shortages… Post WWII – American contribution SCAP –Focused on economic development Korean War Admittance to GATT MITI

History of Japan – Finance Sector Decentralization of Zaibatsu Establishment of Keiretsu

Keiretsu ( 系列 ) Japanese Economic Miracle Heavy Industry, High Growth Over-loaning

JAPAN Economic Situation

OUTLINE Japanese Economy Facts Recent Economic History Causes of the Crisis Economic Recovery Current State and System

Economy - Quick Facts World’s 2 nd largest economy Only the US has a higher GDP GDP (purchasing power parity): –$4.018 trillion (2005 est.) GDP - real growth rate: –2.7% (2005 est.) GDP - per capita (PPP): –$31,500 (2005 est.) Unemployment rate: –4.4% (2005 est.) Currency = Yen Exchange rates: –yen per US dollar (2005), (2004), (2003), (2002), (2001)

Industries Manufacturing, construction, distribution, real estate, and communication are Japan's major industries today. Agriculture makes up only about 2% of the GNP.

Competitive Edge Japan gained its competitive edge by copying and improving Western products and selling them for much cheaper. Their philosophy was one of cooperation, where all facets of business and government worked hand in hand. Keiretsu Government-led development

1970’s Oil crisis and inflation crippled the global economy. Japanese car makers, such as Honda, quickly mobilized to produce inexpensive, fuel efficient cars that crippled the low-tech, gas-guzzling American Cars. Japan also assembled cars with robots, making human error almost nonexistent. Throughout this boom, the Nikkei stock average soared.

1980’s Japan added electronics to its list of specialties. Keiretsu corporations (e.g. Mitsubishi, Hitachi, and Sony) copied and produced quality electronics hardware needed by the growing computer industry. Japan topped American companies because of its ability to compete on price (due to robots and cheap labor).

1980’s World’s largest creditor Highest GDP per capita in the world Seen as Utopia The economy and stock market were booming and real estate prices soared.

Cooling Down Japan realized that its economy was inflated and raised interest rates to cool the growth. Within months the Nikkei stock index (which at its height stood at 40,000 points) crashed by over 30,000 points. The Nikkei could crash this far because its value was inflated on false hopes and hype, not solid financials.

Economic Slump Real estate prices plummeted Japan was mired in a bear market for 14 years.

Banking Crisis As asset prices fell, firms were unable to pay their loans, and the Japanese banking system was crippled by bad debts. This resulted in consumer pessimism, and the inability of banks to lend money, bringing the economy to a standstill.

Steps to Recovery In 1999, the Japanese government poured money into the banking system, effectively lowering interest rates to 0%, where it has remained since.

Hasit worked? Has it worked? Capital Investment has increased again, sending the Japanese economic growth rate to 3.1% in Economic growth last year was 2.7 %, up from 2.3 % in 2004 and 1.8 % in 2003.

Has it Worked? The Nikkei has shown promising growth since 2003 and all indications are that this growth is expected to continue.

JAPAN International Aspects

Member Organizations WTO Member since OECD Organization for economic cooperation & development JETRO Japan External Trade Organization

Interaction with United States Many similarities between United States and Japan: Democratic societies high literacy rates freedom of expression multiparty political systems highly developed free-market industrial economies favor an open and active international trading system.

Investing in Japan

New laws encourage foreign companies to move into Japan: Office set-up assistance Office rent assistance Six growth areas: Health and longevity Environment and energy Life quality Biotechnology Nanotechnology IT

Exports Exports: Japan's main export goods are cars, electronic devices and computers. Most important single trade partner is the USA –Exports - partners: US 22.9%, China 13.4%, South Korea 7.8%, Taiwan 7.3%, Hong Kong 6.1% (2005)

Imports Japan has a large surplus in its export/import balance. Current account balance: $165.6 billion (2005 est.) The most important import goods are raw materials such as oil, foodstuffs, and wood. –Imports - partners: China 21%, US 12.7%, Saudi Arabia 5.5%, UAE 4.9%, Australia 4.7%, South Korea 4.7%, Indonesia 4% (2005)

Foreign Trade Policies Interaction with USA & China –Shift to more exports to China.

JAPAN Special Considerations

Key Challenges Aging Population Declining population growth post-2006 Scarcity of resources Focus naturally must be on ‘labor-intensive’ production

Key Challenges Huge government debt 170% of GDP Solution?

JAPAN The Future

The Future - Solutions Sustain current economic performance – –Be led by domestic demand – –Focus on R&D framework – –Strengthen integration to global economy

The Future - Solutions Ensure an end to deflation Keep price stability in check »0 – 2% inflation range Restructuring of major & regional banks Scale back role of public institutions »Japan Post - privatize Fiscal Consolidation Reduction in spending difficult (aging population) »Increase income and consumption taxes

The Future - Solutions Innovation system upgrade Slight reform of LT outlook » »Increases capacity for global integration Globalization focus It worked before, it can again! » »FDI, international labor movement (↑ out, ↓ barriers in) » »Relaxed regulations (copy China)

Questions?Comments?