The economy of Japan been growing steadily over the past years and this has positioned the country in the second position in the world’s economy. The economy is of the country has been experiencing a boom except for the recent economic meltdown which was witnessed by all economies of the world. Japan has relied on imports for its raw materials. Few mineral resources are available in the country. Japan has used technology as a tool for development. This has lead to the large scale expansion of the industries in the economy. Japan has invested a small amount of its GDP on military and this has enabled the country expand other sectors of the economy. Since World War II Japan has resisted war activities but instead has focused on the development of its infrastructure. This has contributed to a great extent to the success of the country.
This report is an analysis of the international trade that Japan has made with the international communities. The discussion focuses on the macroeconomic factors, globalization, balance of trade, imports, exports and other trade policies. Most of the explanations have been presented in graphical presentation to explain further. In-text citation has been provided to all materials used in the discussion. A list of the references which have been used in the text is provided at the end of the easy. The diagrams are labeled for ease in understanding the graphical presentation of the information.
Japan acquired its independence in 660 B.C. and was first recognized by Emperor Meiji in 1873. The country has 47 administrative divisions. Emperor AKIHITO is the chief of the state and has been in office since January 7, 1989. The head of government is the Prime Minister Yukio HATOYAMA who has been in office since September 16, 2009 (Itoh, 2009).
Geographically Japan is located in Eastern Asia between the North Pacific Ocean and the Sea of Japan, east of the Korean Peninsula. It lies in the geographic coordinates 36 00 N, 138 00 E and has a total area of 377,915 sq km (Junji, 1998). The country is an island and has few mineral resources. A few natural resources are available in the country and the country depends entirely on imports. Almost all products are manufactured from raw materials which have been imported. A small portion of the land is used for agriculture.
Japan is the second largest economy after US. The industries in Japan entirely rely on imported raw materials and fuel. The government subsidizes and protects the agricultural sector. Japan is self sufficient in rice and imports 60 percent other food crops. The country has a well developed fishing industry and contributes to 12 percent of the total fish produced in the world. The economic growth has been high since 1960s. In the 1980s the growth rate declined due to poor investment plans and asset price bubble. The 2008 economic recession affected the country to a great extent. Although the country was not affected directly by the credit crunch of the 2008 there was a reduction in investment and the global demand of its products. The country has encountered two major economic problems: the increasing government debt which has an average of 192 percent of the GDP and the aging and reducing population (Itoh, 2009).
The map of Japan
Several strategies have been developed by the country to promote economic prosperity. Strong work ethics have been established and the use of high level technology in the production has been encouraged. The government allocates a small portion of its resources to defense to avoid wastage of resources in unproductive activities. Only 1% of the GDP is spent on defense (Itoh, 2009).
The Main Body
Japan has a well established economy and has been recorded to be the second largest in the world after US economy (in terms of official exchange rates). In terms of purchasing power parity, Japan is the third largest economy in the world after US and China (Brown, 1999). The exports of the country contribute to a large percentage to the economy of the country. Manufacturing is the major economic activity in Japan though the country has no mineral resources. The country imports raw materials, manufactures the products and exports the finished products. The transport system of Japan is well developed. Roads, railway, air and sea transport are well developed.
3.1 Path of Globalization
Openness index is a measure of the extent in which a country is involved in the global activities and the importance of international trade in the country. Japan an increasing openness index from 2000 to 2006 as shown in the Figure 1 below. The openness index growth was rising steadily between 1970 and 1990. From 1990 to 2000 the index declined and then assumed an upward trend (Brown, 1999). Japan is the most globalized economy and has established policies to ensure the economy operates a favorable global trade. Most of the resources are imported and they are manufactured and then exported as finished products. The country has opened the economy more than any other economy in the world.
Figure 1: Openness Index
The main exports of Japan are cars, electronic devices and computers. The country also exports fish. It is the second world’s exporter of fish (Baker, 2003). The exports of Japan increased at a rate of 10.9% from 2003 to 2007. They exports amounted to US $714.3 billion. Most of the exports are machinery and transport equipment. The export countries for the products from Japan are china, US, South Korea, Taiwan, Hong Kong, Singapore, Thailand and Germany (Baker, 2003).
Figure 2: Exports
The exports have formed a large portion of the Japanese economy. The exports exceed the imports and they contribute to a large extent to the GDP of the country. For the last six years exports have contributed to a great extent to the economy of the country.
According to the table below the machinery form the biggest percent of the exports by value followed by transport equipment. The total exports in 2005 were valued at US $595,686 million. Machinery was valued at US $253,144 million in 2005. Foodstuffs recorded the lowest value at US $2,893 million.
Japan’s Exports by Commodity, 2005 (US$ million)
Figure 3: Exports (Source: Japan Tariff Association, Summary Report on Trade of Japan)
The imports of Japan are oil, foodstuffs and wood. Japan has imports less products than it exports. The imports for Japan are derived from China, US, Australia, Saudi Arabia, South Korea, Indonesia and UAE (Baker, 2003).
Japan’s Imports by Commodity, 2005 (US$ million)
Figure 4: Imports (Source: Japan Tariff Association, Summary Report on Trade of Japan)
According to the table shown above most of the imports made by the country are mineral fuels followed by machinery. The total imports in the year 2005 were US $516,668 million. The mineral fuels were valued at US $132,097 million in 2005. Transport equipment recorded the lowest value with a value of US $18,713 million.
3.4 Direction of Trade
The direction of trade indicates the exports and imports between countries. Bilateral and multilateral exports and imports are aggregated according to the nation and region of trade. The imports for OECD countries declined in 1996-1996 from 52.4% to 49.2%.
The exports for Japan are usually directed to Asia and Latin America. Other countries which import Japan products are Mexico, Argentina, Chile and Uruguay. The exports to African countries are made to Nigeria, Egypt, and South Africa (Baker, 2003).
3.5 Balance of Payments
Balance of payments is a record of the interaction in trade between a country and other countries in the international market. It is the difference between the exports and imports. A positive BOP indicates a surplus in trade while a negative BOP indicates a trade deficit. Japan has been operating on a surplus BOP since 1981. During the 1980s the decline in petroleum prices caused a high surplus. The value of Yen had increased against the dollar hence favoring the Japan in the international trade. In 2002 Japan had a trade deficit of $91.7 billion. In the early 2000s Japan had the highest trade surplus in the world. Japan has opened its economy to international trade more than any other country in the world. According to IMF in 2001 Japan had total exports value of $384 billion and imports $313 billion (Baker, 2003).
Japan has been operating on a deficit in services. The services traded are transport, insurance, travel expenses and others. The deficit in services has increased steadily since 1960. This is as a result of an increase in acquisition of technologies from other countries (Junji, 1997). Despite the increase in the surplus income from investment, the service industry remains in deficit. In 2001 the country had services credit of $65 billion and debit $108 billion. The table below indicates the BOP as reported by IMF in 2001 (Baker, 2003).
Figure 5: Balance of Payments
3.6 Gross Domestic Product
The real GDP of Japan has been increasing since 1960s (Martin, 2000). This upward trend in the growth of the GDP has been experienced throughout up to the 1990s where the economy was still rising. According to the graph real GDP of Japan has shown an upward trend in the years 94, 95 and 96. The graph indicates that the GDP continues to grow for the following years (Gibney, 1998).
Figure 6: Real GDP
During the early 2000s the country was still experiencing an economic boom until early 2008. This increase has been recorded throughout the years and a decline was observed in 2008. In 2008 Japan had a real GDP growth of 2.1 percent. The real GDP of Japan is expected to drop by 4.1% in 2010 due to the global economic recession that was experienced in the year 2008 and 2009. The exports have declined and this has affected the real GDP of the country. The real GDP has declined by 12.7 percent due to the global economic crisis which were experienced in the year 2008-2009. The exports have declined. Coupled with the high domestic expenditure, the country’s real GDP has been greatly affected. The export driven economy is very vulnerable to the economic meltdown that was experienced recently.
Figure 7: Real GDP
The decline in the economic performance started in the first quarter the n extended to the second quarter of 2008. A slight improvement was made in the third quarter of the same year. During the last quarter of 2008 the country experienced the lowest level of economic performance. The beginning of the year 2009 recorded a slight improvement in the GDP and the increase in the economic performance continued up to the end of the year.
Nominal GDP measures the value of finished goods and services produced by a country. They are valued using the current price of commodities in the market. The nominal GDP of Japan has been increasing since 1980s (Gibney, 1998). The value of finished goods and services from Japan has had a high value due to the high value of the currency of the country. The international market has favored the products from Japan due to their competitive prices. The increase in exports has increased the amount of capital generated from the external trade.
Figure 8: Nominal GDP
The nominal GDP has been in creasing since 1987 according to the figure above. The value of capital investment has been increasing since 1987. The increase has been recorded for the preceding years but a slow growth rate was recorded in the 1990s. The private capital investment increased steadily towards the end of the 1990s. In the year 2007 the value of private capital investment declined and this trend continued up to the end of 2009. The value of housing investment was at its lowest towards the end of 2009. The global recession of the 2007-2008 caused a decline in the nominal GDP. The value of the exports from Japan declined since the global market had a low performance. The value of Yen declined and the value of all exports reduced.
Gross Fiscal Deficit is a measure of the difference between government revenues and the expenditure. Japan has recorded a deficit in the fiscal budgets since the expenditure has superseded revenues. The tax revenue has operated below the government expenditure as indicated by the graph (Lincoln, 1988).
Figure 9: Fiscal deficit
Japan has been having excess expenditure compared to the revenues. This has forced the country to increase its public borrowing to cater for the deficit. The government expenditure has been in creasing since 1980s and the upward trend was recorded the beginning of 2000s. It then started to decline as the time continued. Government borrowing has been increasing since the beginning of the 1980s but a decline was recorded in the 1990s.
The current account of Japan recorded a surplus of 899.8 billion yen in 2009. Exports decreased by 40% from the year 2008. The export volumes reached a peak in March 2008 and a decline was registered afterwards. According to the graph below the current account has been operating on a deficit since 2005. The current account measures the difference between the debits and credits in the financial activities of the country. The debits are the expenses, assets and debts that the country has. The credits are the revenues, capital products as well as the credits that the country has. When a country has higher credits than debits it is operating at a deficit. A surplus occurs when the reverse happens.
Figure 11: Current account
The Japan economy has been having surplus current account since 1960s. This trend has continued until the beginning of 2000s. In the year 2005 the country started operating at a lower surplus and by 2007 the current account had a deficit. Towards the end of 2009 the deficit started to decline and the country approached towards a neutral position.
3.7 Important Changes in Trade Policy
The public expenditure policies should be adjusted since the country has been having high expenditure patterns. This has increased the public borrowing and hence placing the country in a risky position. Better policies should be implemented to avoid the increase in expenditure since this may place the country in a very bad economic situation when the international economy is performing poorly.
The policy of the government to raise the domestic prices by 1% each year will create some economic imbalances. The bank of Japan has advised the government to avoid the implementation of the policy to protect the country from inflation. The government should reduce the public debt since the government has increased its borrowing. This affects the GDP (Grimwade, 2000).
The economic recession that was experienced in the year 2008 affected the trade of the country. The country’s exports declined and imports increased. The government should implement other policies to reverse the trend since this is very dangerous for the economy. Better policies should be established to boost the exports. The high rate of importing can be reduced by reducing the expenditure patterns. The imports should be focused only on the essential products to avoid expenditure in unnecessary product. The import of raw materials can be in creased to in crease the production of manufactured products within the economy.
Japan has opened its economy to the international trade more than any other country. This has expanded the trade between the country and other countries in the international market. The global recession of the 2008 affected the trade activities of the country leading to poor economic performance of many sectors of the economy. The industrialization level of the country has improved the quantity of exports to other countries. Almost all raw materials are imported by the country. Fishing has contributed a lot to the growth of the economy. The agricultural sector has been protected and subsidized by the government. This has contributed to the self sufficiency of the country in rice. The mortgage industry in Japan was not affected by the decline in US mortgage industry. The Japanese government had taken adequate measures to protect its economy from the looming economic crisis. Although the mortgage sector was not directly affected the entire economy was affected and all industries declined. Japan has benefited positively from globalization and international trade. The economy entirely depends on trade. The well developed technology in the country has increased the level of industrialization and the country is rated the most industrialized. The manufacturing sector is well improved withy most industries importing raw materials from the outside market. The international trade has improved the status of the country and the country has opened up its economy to access the global markets. The government regulates trade to ensure the country does not suffer from the spill over effect of other economies. The public expenditure by the country has made the country remain in long term debts which have made the country experience deficit in the current account.
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