Japan as an Economic Power

Since World War II, the world has watched as Japan rebuilt itself from a defeated enemy to a participant and then a leader in the global economy. "Made in Japan" no longer carries the aura of inferior goods; indeed, many Americans consider Japanese goods to be of higher quality and lower prices than American goods. The nation that was once considered nonthreatening and powerless in the world economy has emerged as one of the most significant economic powers of the late twentieth century. How this transformation came about, and what it means to Americans and the world at large, is the subject of this research.

In his book, The Sun Also Sets, Bill Emmott takes on the rise of Japanese power. Emmott holds that the power of Japan is not limited merely to its economic strength, which is formidable, but also crosses over into fashion, cuisine, financial services and department stores (particularly in Asia). The nation has itself been transformed through this interaction with the rest of the world, and the larger cities, Tokyo in particular, have taken on a more cosmopolitan appearance and attitude (4).

Until recently, Japan's economic progress was considered by Westerners, and even by some Japanese, as impressive, but not long-term. The fact that Japan depends on raw materials imported from the outside world was cited as a significant weakness: the country is vulnerable to price increases in its raw materials, or to severe production disruptions if the supply is halted or s

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l amounts. The chasm between the nation's savings and investments provides the answer as to why this is the case, according to Emmott. While Japan's personal savings rate remained high throughout the 1982-1988 period, domestic investment (which is where domestic savings were used) changed its patterns. If the government had been operating a budget deficit, high savings would not have resulted in large capital surpluses. However, Japan made a serious and concerted effort to reduce high deficits of the 1970s to nearly zero in the 1980s, with the result that the government was borrowing less capital (savings) each year. Companies followed this same strategy, with the result that their demands for funds also declined (243). At the same time that the Japanese deficit was disappearing and it began building up capital reserves, the American deficit was growing and it began generating a need for additional capital. Foreign exchange controls were removed by Japan in 1980s, which enabled Japanese financial institutions to diversity their investment portfolios with respect to foreign investments. The American budget deficit fed on the surplus capital that the Japanese brought to the market, and interest rates rose accordingly. The c

Category: Economics - J