The Economy of Japan

Japan has the second largest economy in the world. Its Gross Domestic Product (GDP) totaled $4,193US billion in 1997 ($33,317US per capita). Thus, the Japanese enjoy a very high standard of living. Japan's foreign exchange reserves are the largest in the world ($203.22US billion in 1998) and Japan is the world's largest creditor. Labor productivity is one of the highest in the world and the labor market is regulated by the 1947 Employment Security Law. The Ministry of Labour seeks to prevent excessive dislocation or job mobility among workers, and employment services (such as employment agencies) are therefore tightly controlled.

Despite these successes, the Japanese economy has experienced a downturn in the 1990s. Growth has slowed, average annual GDP growth falling to 1.4 per cent (1991-95). The government attempted to stimulate the economy in the early 1990s through public spending, but this served only to put public finances in an unsustainable position. As a result, in 1997 Japan found itself in its worst recession since World War II. The slowdown in the Japanese economy has been not only more severe but has also lasted longer than expected.

With the downturn in the economy, the Japanese government was under pressure to make specific changes to its policies. Economists suggested several significant structural adjustments that should be made to the Japanese economy. First, the banks needed to clean up bad debts that resulted from the coll

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s highest since the late 1980s. Consequently, Japan's cost advantages based on its low wage level disappeared and the high wage level became a heavy handicap. This was the moment when the environment surrounding Japan's economy and corporations entered into a new phase: the bubble economy. The entry into the bubble economy also coincided with several other processes that would require Japan to adjust its post-war catch-up policy. For instance, the world supply structure changed drastically at the end of the cold war and the global market economy domino effect began to advance. In addition, direct investments increased explosively throughout the world and production capabilities and technologies began large-scale movements beyond borders. The Bank of Japan is responsible for monetary policy. The yen is a floating currency, although the government will intervene to prevent excessive fluctuations. Until recently, the Japanese banking system was widely regarded as one of the strongest in the world, but it has since plunged into turmoil. The Japanese system presents one of the most striking differences between the way capital markets in most other developed countries and in Japan. Patterned after the Reichsbank law of Nazi Ge

Category: Economics - T