Linkage Between Economic Concepts And Discussion Of Macroeconomic Event In Japan’s Economy

Concepts of Macroeconomics and GDP

Write an essay on Linkage between economic concepts and discuss macroeconomic event.

Mankiw (2014) opines that the trend in economic growth of a country determines the financial stability of that particular country. The given assignment will reflect upon the article “Japan’s Economic Roller Coaster Is Headed for another Dip” by Toru Fujioka. This article highlights the rapid change in the rate of GDP in the economy of Japan. The figures are rapidly moving up and vice versa. The seesaw cycle can have a negative impact on the economy. These impacts and challenges have been highlighted through the given assignment.

Benassy (2014) opines that the concept of macroeconomics determines the future predictions of economic conditions of the firm. GDP refers to the total amount of goods and services that any particular country produces. It can be further inferred that the background of any country’s economy is the percentage of increase of Gross Domestic Product (GDP) of the country. This nominal value of Gross Domestic Product will be on the higher side if the rate of inflation of the country is also on the higher side. From the article, it can be opined that the economy of Japan has seen both sides of inflation and deflation. Deflation can be very harmful to any economy (Oberfield and Raval 2014). For this reason, the economy of Japan has faced both positive and negative GDP. There is a direct and positive correlation between the rise in GDP and inflation rate. From the scenario of Japan, it can be inferred that there is the negative impact of different types of economic policies undertaken by the Govt. Macroeconomics are based on two concepts. These are monetary policy and fiscal policy. Japan has failed to adopt an effective fiscal policy, which had a direct impact on the disposable income of the consumers. Hodgson (2014) opines that the central bank of any particular country plays an effective role in determining the monitory policy of that particular country.

From this article, it can be concluded that the Central Bank of Japan (BOJ) has failed to adopt any structural reforms to control the ongoing deflation of the country. However, BOJ has tried to nullify all the weak links of the economy with an aggressive strategy. The industrial production has also taken a back due to fiscal and monitory policy of Japan. This has led to the concept of “Abenomics”. This concept reflects about stagnation in the economy from a higher rate of deflation and volatility in the economic rate. The Government of Japan failed to control down the rate of GDP and inflation even after adopting the concept of “Abenomics” in a successful manner.

According to Ascari and Sbordone (2014), the curse of capitalism can have a direct impact over an economy. Capitalism can make an economy a roller-costar one. Japan is considered as a capitalist country and due to this reason; its economy is going through a downturn. The investors of Japan are moving away from it, which has further led the economy of the country in such a downturn.

In macroeconomics, it has been studied that the bottom line of an economy depends upon the following three aspects:-

• GDP
• Unemployment
• Inflation

However, it has been also studied that the consumers of the country also determines the direction of economy of that particular country. Therefore, it can be further inferred that the consumers of Japan follows a ‘deflationary mindset’. This has a negative impact on the economy of Japan. In addition to this, both Government and Central Bank of Japan has failed to control the flow of currency in the economy. This has further led to higher expenditure, thus, minimizing the national income. The principles of macroeconomics suggest that if a country is suffering from higher expenditure and lower amount of income, then, deflation is bound to take place. In addition to this, it can be also inferred that fiscal deficit also have a major impact when it comes to fluctuations in imports and exports (Oberfield and Raval 2014).

It has also been studied that GDP per capita depends on standard of living of the country and economic development of that particular country. The per capita income of Japan has declined considerably because the country’s industrial production has declined considerably. This has a wider impact on the economy, creating a downturn. Apart from this, it can be also deduced that debt-GDP ratio shows a true picture of the status of any economy. In case of Japan, the debt-GDP ratio of the country has increased to 5 trillion yen (Bloomberg.com 2016). This further reflects that the industrial scenario of Japan has gone down drastically. In addition to this, it can be also deduced that the economy of Japan has failed to adopt the Solow model. This model interprets that the rate of GDP will increase with percentage increase of population of the country as well as flow of investment in the economy. Not only has this, the BOJ and Government of Japan failed considerably to adopt the different forms of growth models that have a considerable positive impact over the economy. From the analysis of rate of inflation and GDP rate, it is reflected that Japan is facing problems in terms of unemployment as well.
Apart from this, the exporting and domestic purchasing of the country has further declined considerably. This further opines that the country is suffering from higher amount of debt due to lower amount of export and rate of domestic purchasing. It has been also studied that the power of the country depends upon the power of the currency and purchasing power of the economy. In case of Japan, its currency was depreciating and purchasing power of the consumer was going down considerably. From the above analysis, it can be concluded that all the macroeconomic concepts can be linked with the macroeconomic event that took place in Japan

Impact of Economic Policies on Japan’s Economy

There are several issue faced by Japanese economy during settling out fluctuation with monetary and fiscal market within financial year 2016. As there are different types paradoxical mixture of failure and successful scenario created within economy, which is directly or indirectly influencing the economic standards within a specified period (Gillespie 2014).

Mainly Japanese economy influences due to higher standard of living and individuals capita income during financial year 2015 by considering purchasing power parity with the amount of $38,000 in Tokyo and $41,000 in country France and Britain (Bloomberg.com 2016). As per the study, the measured unemployment rate has been strike at 3.3%, which is lower than US and European countries are 5% and 10% respectively.
The current scenario of the Japan economy is showing deflation due to lower consumer prices, which is causes decline in Gross domestic product of the country within that specified period. Whenever it was measure by researcher that once the borrowing cost processed by the fiscal department of the country at zero percent, the fiscal deficit for that economy will be reach approx 7% with the government debt, which is exceed to 230% respectively (Bloomberg.com 2016). The population and labor force for Japanese economy is shrinking and become more confusing for the implying the higher amount of debt ratios within future period.

The Bank of Japan has been appointed new operation head to measure the inflationary rate, which is equivalent to 2%, and immediate to resolve the announced issue faced by the entire Japanese economy required strategic tools and techniques. This can easily maintain the combination between slow growth rate and lower inflation to maintain their monetary system and short term fiscal system for proper reformation of labor and product markets. The Abenomics (Government’s economic policies) established by the government authorities has been comprising three arrows strategy to overcome the economy issue faced by the Japanese economy in future period of time (Bloomberg.com 2016). The monetary policy of the company will be based on the large scale purchasing and government bonds, which is reported to causes fall of yen and interest rate for 10 years period. As per the market observation, it is found that huge amount of competitive exchange rate is supportive to raise profitability scenario of Japanese exporters but that is also keeping their output. This again is keeping the yen currency weaker in the economy due to increment, in import prices and reduction in real income and households services in Japanese economy accordingly (Lengnick 2015).

In the financial year 2016, month of January, the appointed head of the Bank of Japan has been gone through the negative deposit rates on commercial banks and its mandatory reserves with the support of different confessionary act and activities. There are also several effects which are related to the reduction of household and business demand to fluctuating and globalised scenario for enhancing the value of Yen approximately 10% with respect of US dollars (Bloomberg.com 2016).

According to the research of Bank of Japan was shown that there are no such changes done by the government authorities in the policies as it was expected to resolve the monetary conditions of the market. With the reaction of these scenario, Government authorities of the Japanese economy required to strengthening the yen approximately 2% with compare to US dollar and simultaneously stock market of Japan is falling by 3% respectively. There are also several fiscal policy related issue which is begin at early 2011, as economy required higher amount of support to focus on the repairing and replacing infrastructure get effected during natural calamities and earthquake. The Japanese economy is rapidly enhancing their inflationary rates with comparison to reduce budgetary deficit and different speculation of government bodies with the growth perspectives of economy. There are also several issue related to fluctuation in VAT rates from 8% to 10% respectively (Bloomberg.com 2016).
The government authorities are also raised value added tax to 8%, which is compensating the economic growth and deficit within specified period. The overall economic scenario is based on economic downturn, which is supportive to declining of Gross domestic products since from 2008. The reduction in foreign workers and encouragement to women empowerment in the Japanese economy is helpful for continuous growth of the economy. After overall research, it was found that there were no such way for the economy to avoid the budgetary deficits and shrinking cost for Japanese economy to control their financial abilities and economic related challenges. The GDP and CPI index is also declining due to unavoidable scenarios of the economy with the failure and government borrowing within that specified period (Lockwood 2015)

From this, it can be concluded that Japan has faced several challenges to control their economy. The government of Japan and Bank of Japan has taken several adequate steps, however, they have failed to control the factor of GDP and deflation rate.

Factors Affecting Japan’s Economy

The overall scenario of Japanese economy fluctuation due to economic crisis and financial fluctuations has been shown that monetary and fiscal policies of any economy plays a very important role to measure the feasibility and sustainability of the organization within a specified period of time (Bloomberg.com 2016). The economic fluctuation in the Japanese economy happened due to avoidance of different types of fiscal and monetary policies and inverse rate of economy in terms of higher rate of inflation and deflation within a specified financial period for longer period. As the Japanese economy is having such a less number of unemployment rate of 3% in comparison to United State and European Countries are having 5% and 10% respectively. There are also negative rate of interest, which is decreases the household services and business demand for that particular economy within their processing period of time (The Business Times 2016).

According to the economists, such economic crisis in Japan can be considered as a liquidity trap, where the monetary policies have totally failed to reduce the interest rates as the rates are already closed to zero. Many researchers are linking the present scenario with the Japanese asset price bubble, occurred in the 1980s. The collapse of the asset price bubble has caused a deep long-term crisis period, globally which is known as The Lost 20 Years (1991-2010).

As per the researchers, the ups and downs in the GDP are just the aftermath of that crisis period. The banks of Japan, in the late 80s, adopted the policy to lent more without concerning about the background of the borrowers. Various companies and business houses grabbed the opportunity and began to rely more on debt financing for capital funding instead of raising equity capitals. It resulted in the fall of equity prices and crashed the Japanese Stock Market. On the other hand, the interest on loan had reduced to 0.1% and the banks and other financial institutions had greatly suffered from high amount of bad debts. Many of the Japanese firms were over burdened with debts and many of them became bankrupted. As per the records, the percentage of debt over the GDP in Japan is 240% – highest in the world (Bloomberg.com. 2016).

To overcome the situation, many Japanese firms began to depend on temporary workers with lesser job security and other benefits. Gradually, these non-traditional workers took over more than 1/3 share of the total labor force. As the result, the real wages began to fall down drastically. From 1997 to the present, the real wages of Japan has gone down approximately 13%, which is considered to be the highest downfall among the developed nations (The Business Times 2016).

In addition to these, the major portion of debt is attributed to domestic market and hence, it is expected that the large amount of debt repayments will cause further de-growth in the financial health of the country.

The bank of Japan plays incredible role in terms of managing the monetary and fiscal policies and providing better justification for their usage in future period. As it is already discussed that, the economic scenario of a particular economy is required to be processed their policies and regulations accordingly to economic scenario and perspectives (Bloomberg.com 2016). According to the new appointed head of the Bank of Japan is basically working with their new approved policies and procedures to properly manage and justify the scenario for reduction of inflationary pressure and lower growth rate (Ansolabehere, Meredith and Snowberg 2014).

Conclusion

The report states the various aspects of the Japanese economy that has experienced the influence of both inflation and deflation. In the impact of the linkage of the concepts of the discussion of the various macroeconomic events, it was found that there is a direct and positive correlation between the rise in the GDP and the inflation rate in the economy. The Japanese per capita income has experienced a decline due to the reduction in the country’s industrial production. This has been further shown by the reduction in the GDP of the country. The report also shows the main impacts of the economy has been affected due to the decreasing GDP, increasing rate of unemployment and an increasing rate of inflation in case of economy of Japan.

References

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