Literature Review
Japan has historically been viewed to be a country that with one of the largest and
most prominent automotive industries worldwide. Since the 1970s (Billy, 2024), Japan has
held the title of the third largest automotive market in the world, right after China and the
United States (Statista, 2024), although it was very recently pushed to fourth place this year
by India (Japan - Automotive, 2024). There are numerous factors which affect Japanese car
sales that have led to this success. This review will detail the theories behind the factors
selected for this study.
Table of dependent and independent variables
Dependent Variable (Y)
Car sales in Japan
Independent Variable (X)
Population growth rate in Japan
Inflation rate in Japan
GDP per capita in Japan
Population growth refers to the change in the number of individuals in a population
for a given country, territory, or geographic area, during a specified period (IGI Global, n.d.).
Intuitively, there should be a positive relationship between population growth rate and car
sales as a larger population would result in more cars being purchased. However, a study
conducted by Yagi and Managi (2016) showed that the relationship between population size
and car sales in Japan is relatively complex. The results differed based on the type of car, but
it was concluded that generally a decrease in population and household size would accelerate
car ownership. The reason being that smaller populations in certain prefectures lead to a
higher degree of living area per capita, increasing car demand per capita in total.
Inflation refers to a gradual loss of purchasing power of a currency unit, reflected in a
broad rise in prices for goods and services over time (Fernando, 2024). A study conducted by
Nawi et al. (2013) in Malaysia stated that inflation rate and car sales have a negative
relationship. This conclusion is echoed by multiple other studies, such as one conducted by
Pehlivanoğlu and Riyanti (2018) which focused on the relationship between inflation (and
other macroeconomic factors) and the four top automobile production countries at the time
(USA, China, Japan and Germany). That study found that inflation has a relatively strong
effect on car sales, with a 1% increase in inflation causing a 7.23% decrease in car sales.
Johan S. (2020) studied the relationship between macroeconomic factors and auto sales for
five major ASEAN countries. He found a significant and negative relationship between
inflation rate and car sales, concluding that a higher consumer price index causes lower
demand for car sales.
In this study, GDP per capita in Japan is used to measure the income level. GDP per
capita is an economic metric that provides a basic measure of the value of output per person,
which is an indirect indicator of per capita income (DataBank, n.d.). Patra and Rao (2019)
studied the impact of macroeconomic factors on automobile demand in india, and found that
GDP per capita has a highly significant and positive relationship with car sales. This is
supported by another study done by Haugh et al. (2010) involving USA, Japan, Germany,
Italy, France, Canada and the UK, which also concludes that GDP per capita and car sales
have a strong positive relationship.
However, Ferhat and Retno (2018) conducted a study of the macroeconomic effect on auto
sales in China, USA, Japan and Germany. They found that there was negative significant
relationship between GDP per capita and car sales.
(in case our results got negative)
Abstract
This study aims to analyze the statistical relationship and economic relationship between
specific macroeconomic variables and car sales in Japan. In this study, the annual car sales in
Japan from 1993 to 2022 is used. To achieve the objectives, the Ordinary Least Squares
(OLS) method is applied. Results show that there is no significant relationship between
Japanese car sales and inflation rate as well as Japanese car sales and GPD per capita.
However, there is a significant statistical relationship between Japanese car sales and
population size.
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