日
本
経
済

Source: Web Japan & Japanese Consulate General, San Francisco
2
2

 “Cool Japan”
 Japanimation
 “KAWAII”
3

http://www.youtube.com/watch?v=i12bIqfRXJM

• Four main islands:
• Hokkaido (N)
• Honshu (main island) – Tokyo, Mt. Fuji, Osaka, Hiroshima
• Shikoku – Rural
• Kyushu (SW) – Fukuoka, Kagoshima, Nagasaki
• Most of the population is in Honshu, between the Kanto (Tokyo-Yokohama-
Kawasaki) in the east and the Kansai (Kobe-Osaka-Kyoto) in the west
• Tokyo – Yokohama has almost 25% of the population (over 33 million)
• Close to 80% of the land is mountainous
• Japan is poor in natural resources and flat arable land. it depends on imports, for example, for 99.5% of its petroleum
6

Population
127,704,000
(2008)
Population Density (per km sq.)
Population, share of 0-14 years
Population, share of 15-64 years
Population, share of 65 and over
336.1
13.6%
65.3%
Sex ratio, number of males per 100 female
Total fertility rate
Death rate (number of deaths per 1000 population
21.0%
95.9
1.37 (2009)
9.54 (2009)
Infant mortality rate (number of deaths per 1000 live births )
Life expectancy at birth (total population)
Life expectancy at birth (male)
Life expectancy at birth (female)
Net migration rate (number of migrants per 1000 population ) Various Social Statistics (2008 -9)
2.79 (2009)
82.12 (2009)
78.8 (2009)53
85.62 (2009)
0.00
http://www.stat.go.jp/english/data/handbook/c02cont.htm#cha2_1
7

40 000
38 000
36 000
34 000
32 000
30 000
28 000
26 000
24 000
22 000
20 000
18 000
16 000
14 000
12 000
10 000
8 000
6 000
4 000
First passed
9,000 in
July 1983
Nikkei Chart, 1980-2009
Peak of 38,915 in
December 1989
Just over 9,000 in
May 2009
8

Nikkei – Last 5 years
9

PACIFIC Exchange Rate Service http://fx.sauder.ubc.ca/plot.html
10

9,0%
8,0%
7,0%
6,0%
5,0%
4,0%
3,0%
2,0%
1,0%
0,0%
-1,0%
-2,0%
-3,0%
-4,0%
-5,0%
-6,0%
-7,0%
-8,0%
15,0%
14,0%
13,0%
12,0%
11,0%
10,0%
Japanese GDP Growth
(seasonally adjusted, % per annum over previous year)
Moving
Average
Bubble Bursts: Peak 1991
11

Japan GDP Growth Rate
12

Some Other Interesting Facts
• Japan now has a far higher percentage of single women between the ages of 20 to 40 than the United States--higher than almost anywhere in the world except Scandinavia.
• 80% to 90% of single Japanese women live with their parents, as do about half of the men in their 20s. Most pay little or no rent and do no housework.
• One sociologist estimates that Japan has 10 million "parasite singles"--roughly equal to the entire population of Greece.
Q1. What are the economic factors that affect these facts?
13

14

Bubble Economy (How “Bubbly” Was It?)
1985 -1990
• Asset Price Inflation
– Stocks - Nikkei hit high of 38,915 on Dec. 31 1989. Keep in mind it did not hit 10,000 until after 1985.
– Land and Real Estate Prices – Prices more than doubled from 1987 to
1990.
– Real Estate inflation more pronounced in larger cites
• Consumer prices not significantly affected
• Rapid economic growth
15

Land Prices
16

Japanese Urban Real Estate Prices vs Consumer Price Index Inflation

Commercial Real Estate
—6 largest cities—
CPI (inflation)

18 years!
17

• Matsushita Group (Panasonic) > Universal Studio
• Sony Group > Columbia Pictures
• Mitsubishi Estate Group ->Rockefeller Center and
Pebble Beach
Q. What happened to these investments?
18

Looking at the Causes of the Bubble
• Background
– Strong growth in 1980’s and stronger consumer confidence
– Financial Deregulation throughout 1980’s.
– End of deficit spending by government
– Main-bank relationships
– Problem with trade deficits (led to Plaza Accord)
– Expansionary monetary policy to counter Plaza Accord
– Management poised for strong growth
– Reaganomics (high interest rates in US)
– Belief that Japan was becoming an economic superpower
19

• Interest rates were effectively 0%
• Firms over borrowed
• Projects that earned a mere 0% were approved
• Banks over lent
• Collateral or track records were enough – expectation that asset prices would always rise
• Asset prices proved unrealistic
• Projects didn’t earn 0% ex post
• Banks eventually, however couldn’t collect on their loans
20

0.6
0.5
0.4
0.3
Year
21

0.14
0.12
0.1
0.08
0.06
0.04
0.02
Proportion of Loans to Real Estate
Developers
Year
22

BOJ Dis cou nt Rate Targ et Cal l Rate
6.0 0%
5.0 0%
Aug 30, 199 0
4.0 0%
3.0 0%
Christmas 1989 rate hike
– "bubbl e" peaks –
2.0 0%
Nov 1, 1986 fol lowing
"Plaza Accord"
1.0 0%
Feb 23, 198 7
May 31, 198 9 firs t an ti-"Bub ble" rate hike
0.0 0%
Ju l 1, 199 1 interest rate s ke pt h igh for 1 8 mon ths foll owing the "bub ble's" p eak
Sept 8, 1995
0.5 % dis cou nt ra te!!
Feb 12, 199 9
"Zero Interest
Rate Policy" co mmen ces
23

24

Malfunctioned “Safety Net”
Bank of Japan (BOJ)
Ministry of Finance (MOF)
“Discretionary Guidance”
Inefficient Monitoring of Banking System
Some Reinforcing Factors
Cross-holding share in Keiretsu system
Expansion of real estate companies (Jusen)
25

• Impacts
– Longest recession in post-war period.
– Non-performing Loans
– Major Bank Failure and Merges
• Causes of prolonged slowdown
– Delay in recognizing problems and in responses
– Uncoordinated Actions
• Covered Problems
– Overprotected banks
– Inefficient corporate governance and structure
26

• Monetary policy doesn’t work
– Interest rates can’t be pushed below 0%
– But prices are falling ==> real rates are positive
• Banks (rightly) fear bad assets
– Outstanding loans are shrinking
– Little investment
– “Liquidity Trap”
• Fiscal policy is not working
– Large government deficits
27

Percent
10
GDP
5
Real GDP
0
Bu bble
Nominal GDP
-5
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
After the bubble, economy looked up in
1996-97, 2000 &
2003-07.
Industrial
Production
Shaded areas are recession periods
Production
Inventory
But economy fell again in
2008-09 due to declining global demand.
28

Japan’s Lost Decade (early 1990s-early 2000s):
Why Did the Recession Last So Long?
• Long adjustment after a large asset bubble
• Non-performing loans (late policy response)
• Japan’s economic system became obsolete (?)
• Aging population and associated problems (pension, medical care, dissaving, etc)
• Snowballing fiscal debt
• People’s lack of confidence in the future
• The China challenge (vs. “return to Japan”)
 Lack of political leadership to propose solutions, convince people, and implement actions
29

Non performing loans
--Credit crunch and mini bank runs in 1997-1998
--Slow policy response (1998-2000)—creating special agencies and public money injection for bank recapitalization
Monetary policy for recovery
--Injecting liquidity by buying up unconventional assets (corporate & bank bonds, etc): but the monetary transmission mechanism was broken
(MB  Money  Lending)
--Zero interest rate policy (Feb.1999-Aug.2000; Mar.2001-Jul.2006;
Dec.2008-)  creating incentive for “yen carry trade”
--Inflation targeting—debated but not adopted
--F/X intervention to prevent yen appreciation (but without aggressive yen depreciation)
30

Call rate
(interbank shortterm interest rate)
Percent
40
Money & bank lending
30
20
10
Excess reserves are built up during zero interest rate periods
0
-10
-20
-30
6
5
4
3
2
1
0
8
7
9
%
Bubble
Monetary base
Money supply (M2)
Bank lending
Zero interest rate policy
31

400
350
300
250
200
150
100
50
0
Yen/USD
USD billion
2000
1800
1600
1400
1200
1000
800
600
400
200
0
International Reserves
J apan
China
25.00
20.00
15.00
10.00
Monthly Changes in International Reserves
(Proxy for F/X intervention)
Buy Dollar
(resist yen appreciation)
5.00
0.00
Jan-80
-5.00
Jan-83 Jan-86 Jan-89 Jan-92
-10.00
-15.00
Jan-95 Jan-98 Jan-01 Jan-04 Jan-07
Sell Dollar
(resist yen depreciation)
Source: McKinnon (2007)
32

• During the 1990s, large fiscal spending was used to stimulate the economy. But there was no strong recovery, while the government debt skyrocketed.
• Some argued for even bigger stimuli; others said that would only worsen the situation.
Government debt in % of GDP
• PM Koizumi (2001-06) set limits on spending
(infrastructure, welfare).
• PM Aso (2008-) returned to big fiscal spending to combat recession.
180%
160%
140%
120%
100%
80%
Bubble burst
168%
60%
40%
20%
0%
33
Abe Fukuda
Koizumi Aso

34

Main causes of recovery (2003-2007)
--Strong foreign demand (US, China)
--Decade-long corporate restructuring effort
--Yen depreciation (up to 2007)
 Recovery was not mainly due to reforms or good macro policies
Global financial crisis (late 2008-2009)
• Traditional industrial exports (cars, electronics) which led recovery suddenly lost export markets.
Remaining issues
• Agriculture, services, distribution, finance remain uncompetitive.
• Long-term problems remain unsolved - fiscal crisis, pension & medical reforms, aged but vibrant society, new energy…)
• Koizumi deregulation & liberalization increased income gaps and created new poor).
35

Politics: The End of the 1955 Regime
LDP dominance based on rural expenditure and support
?
Two party politics with clear policy choice for voters
• The last three LDP governments (Abe, Fukuda, Aso) have been weak and unpopular.
• The opposition (Democratic Party) is not very popular or effective either.
• In July 2007 election, opposition seized majority in the Upper House--“twisted politics” causes confrontation and slowdown
• In Aug/Sep 2009 election, LDP loses
36

Recent Prime Ministers of Japan
April 26, 2001 – September 26, Junichiro
2006 Koizumi
Shinzo Abe September 26, 2006 –
September 26, 2007
September 26, 2007 –
September 24, 2008
Yasuo Fukuda
September 24, 2008 –
(September 16, 2009)
(September 16, 2009 –)
Taro Aso
Yukio Hatoyama
Photos from the Cabinet Office, and the Democratic Party of Japan
37

New Administration’s view on Japan-US relations
• Japan-US Security Alliance in place since 1951
• Mr. Hatoyama assured President Obama that
Japan-US alliance is the foundation of our foreign policy copyright: AFP/Kazuhiro
Nogi
38

What do Japanese people think about current
US-Japan relations?
90
%
80,9 80
76
70
68,9
60
63,4
62,6
Good
Not
Good
50
40
30,5 30
20
10
0
27,1
16
12,8
28,1
Oct, 1990 Oct, 1995 Oct, 2000 Oct, 2005 Oct, 2008
Cabinet Office, Government of Japan
39

Social Issues -Total Fertility Rate
40

Unit: 10 thousand
41

Japan's Population Age Structure
500 450 400 350 300 250 200 150 100
85 〜
80 〜 84
75 〜 79
70 〜 74
65 〜 69
60 〜 64
55 〜 59
50 〜 54
45 〜 49
40 〜 44
35 〜 39
30 〜 34
25 〜 29
20 〜 24
15 〜 19
10 〜 14
５ 〜 ９
０ 〜 4
1,000 people
50 0 50 100 150 200 250
85 〜
80 〜 84
75 〜 79
70 〜 74
Born 1945-49
65 〜 69
60 〜 64
55 〜 59
50 〜 54
45 〜 49
Born 1970-74
Born 1995-99
40 〜 44
35 〜 39
30 〜 34
25 〜 29
20 〜 24
15 〜 19
10 〜 14
５ 〜 ９
０ 〜 4
300 350 400 450 500
Female Male
42

Possible Scenarios of Population Change in Japan
43

Citizens' Welfare Cost and Tax Burden （％）
44

2008 65,9% 34,1%
30,4% 2003
1998
69,6%
1993
76,4%
79,2%
23,6%
20,8%
1988 81,7% 18,3%
0% 20% 40% 60% 80% 100%
Full-time worker (Regular staff) Part-time worker (Non-regular staff)
Statistic Bureau,
Ministry of Internal Affairs & Communications 45

46

• Limited or flexible hours
• Little Responsibility
• Low Paying
• Few or no job benefits
• No long-term commitment
• Undemanding work
47

• Workforce with undeveloped potential
• Low contributions to taxes, pension system
• Increase poverty/homelessness
• Lack of independence
• Looming labor shortage
• Depressed birthrate
48