Sunday, November 15, 2015

Japan: Return to Recession

On November 15 (our time), Japan's Cabinet Office announced that the national GDP contracted by an annualized 0.8% in the third quarter. Stocks in Tokyo also fell by approximately 1% during trading early Monday.

This puts Japan's experiment with so-called "Abenomics" on the rocks. The "Abenomics" plan, named after current Prime Minister Shinzo Abe, is a large bond-buying campaign, in addition to structural reforms and stimulus from the central government. Overall, the plan has largely failed to boost economic growth. Experts believe that the government needs to step up its stimulus efforts, but this has been met with some resistance by central bank officials. The national government is expected to announce new policy measures sometime around January.

I don't expect many students reading this blog to be up-to-date on Japan's economy and policies in relation to it, but for those of you who are: Do you think Japan should continue the "Abenomics" experiment? What measures do you think the country needs to take to make an economic recovery?

CNN Money


Anonymous said...

It appears to me that it will take more than a stimulus plan to get Japan's economy back on track. Japan needs to start mobilizing their women to work since after all they are 50% of the population. Japanese culture is very conservative so the women are expected to stay at home if and when they get a child which leads me to my next point. Japan's population has been dangerously stagnant because women refuse to have children when they want to actively participate in the work force. People are not having as many children in Japan because of the culture of wanting a high paying job and working hard so they see having children as a burden. This is a problem that many developed countries have, the outlier being the United States. Another problem that Japan has that is leading to their sluggish economy is the fact that almost 25% of their population is 60+ years so they are starting to retire. With 25% of the population starting to retire, there obviously is not going to be as much productivity. The young workers of Japan are going to have to pay more in taxes now in order to help these people with their retirement and medical benefits. Now to relate this back to the US foreign policy, this is going to be a serious problem. Japan has always been our strong hold in the Asia pacific region because they have been one of our most loyal non NATO ally and they are the 3rd biggest economy in the world. With the Japanese economy in the decline, many of them may not buy as many American goods since we are their 2nd largest importer. They may also have to start being reliant on the Chinese for support with cheaper goods which is going to lead to a loss of our exercise of influence in the Asia Pacific region.

Vicky Hoznek said...

After doing some research on Japan's economic history and the details of the Abenomics program, I think it would be for the best to change the plan to address the weakening of the Japanese yen, and to focus on targeting the root of the country's economic problems instead of dealing with the consequences. After the implementation of the plan, the yen became about 25% lower against the dollar in the second half of 2013 as compared to the same quarter in 2012, increasing the cost of imports of food, oil, and other natural resources on which Japan is extremely reliant. That's not to say the program doesn't have its merits: unemployment has decreased (although the guidelines for who is considered employed are quite lax), the stock market has risen, and increased consumer spending has pushed economic growth up as well. The program has definitely had some short term benefits (and greatly increased Abe's approval ratings), but I don't see it working in the long run due to its focus on economic demand rather than supply, which is what is being affected by the country's changing age dependency ratio. Steven summed up the age problem well: as the population ages, fewer babies are being born, resulting in the workforce struggling to support those who are unable to work due to age. This will end up causing supply problems, as the workforce will not be sufficient to maintain the amount of exports Japan is currently producing, and I feel like this is an issue that isn't really addressed with Abenomics. Overall, I don't think it's a bad plan, but it could definitely use some changes.