The Japanese Economy

Paper Summary:

Although the Japanese economy has been struggling for over a decade now, the fact remains that it is still the world's second largest economy, which probably accounts for the worldwide concern over its fortunes.This paper shows that Japan continues to cause concern, even though its economy is currently showing signs of recovery with a first quarter 2004 GDP annual growth rate of 5.6 percent, more than the 3.8 percent that economists had predicted. The current recovery is largely spurred by an increase in exports, business investment, and consumer spending. The paper notes that, despite such encouraging trends, however, it is still widely believed that the Japanese economy may not be able to show sustained recovery, as its problems are not cyclical but structural and that many of these structural problems have yet to be resolved.

From the Paper:

"However, the Japanese economic formula for success proved to be fallible with the rapidly changing global political and economic environment post 1985. For one, the Japanese system of state-assisted capitalism worked in an era where Japan had few economic competitors in Europe and Asia, and till such time that the United States turned a benign eye on Japanese policies that discouraged imports (Ellington, 1999). In fact, Japan's macroeconomic instability can be traced back to the September 1985 Plaza Accord, when the United States and Japan reached an agreement aimed at reducing the value of the dollar-yen exchange rate (Matsuura et.al, 2003), and the United States began applying pressure on Japan to open up its economy to imports and investment (Ellington, 1999)."

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