The article looks into the fluctuation of Japan’s gross domestic product in the period between July and September last year. According to the article, the fall of this country’s GDP was seen to have happened as a result of a number of natural disasters that hit the country during the summer. These occurrences affected the domestic demand as well as the exports. Furthermore, the trade war between the United States and China was seen to have the potential of making the situation worse as the year 2018 neared to the end.
The GDP experienced a contraction which was the highest to happen in almost 3 years. There was a fall in personal consumption which is the main contributor to the Nation’s GDP. The capital investment business –wise also dropped. Again, owing to the landslides and flooding, exports were affected,and a number of manufacturing industries experienced a temporary close-down. The tourism industry was not left behind,and it significantly declined further affecting the situation.
The GDP is one of the economic tool used to measure the economic strength of a country. It represents the total value of goods and services that have been produced over a given quarter (Blanchard & Johnson, 2017). The article has analyzed the GDP along with the income approach, looking into investment, consumption,and exports. When these variables increase, there is a rise in GDP and vice versa. In our case here the variables have reduced and this has been duplicated in the GDP for the 2018 quarter. These variables also depend on other factors and the article gives natural disasters as a cause. For instance, the landslides and flooding directly interfere with production and tourism,and this affects the total export. Low GDP means that the economy is not doing well, companies earn less while investor reduces or stop their investments.
The article offers that adjustments in the labor productivity coupled with the increased workforce participation as the factor behind the low inflation for the Japanese economy. With an aging population on the rise against the young population, companies have had to automate their operations in the bid to overcome low labor shortages.Such moves have boosted labor productivity and cushioning against the workforce shortage and have facilitated a reduction in inflation.
Although Japanese labor productivity has had a steady improvement, real wages have also experienced a rise but have lagged behind the labor productivity. However, the improvement on labor productivity coupled with the participation of the labor-force attribute to the low inflation. The annual consumer inflation has remained below the target,and the wages have been on the rise as a result of the labor shortage. As the former deputy of the Bank of Japan advice, that policymakers can rectify the situation, boosting the labor market by encouraging foreign labor sources. Encouraging foreign workers to enter the country would help correct the demographic imbalance. The aging population although it is not healthy for the economy, it has enabled the Japanese companies to be proactive in putting measures in place to improve labor productivity.
A significant number of economists support keeping inflation rate low as this is taken to contribute to the stability of an economy through facilitating investment, encouraging saving and general economic growth. A government usually have a target for moderate inflation at 2% which is taken to minimize inflationary costs and again avoid costs associated with deflation (Brunnermeier&Sannikov, 2017). Low inflation encourages investment, competitiveness, saving and economic stability. However, low inflation can be disadvantageous to an economy, with rising unemployment. When it happens for a long time, it can even be disastrous. The government to some extent have the capability to take up measures to keep the situation in check.
As the article puts it, the unemployment rate in Japan has undergone fluctuations since 2017 and in January 2018 unemployment rate dropped by 3%. In the month of May,unemployment fell further by 2.2% as confirmed by the Bank of Japan. There has been labor crisis, with companies and business fraternity desperate to fill vacant positions. Labor intensive industries, as well as those requiring less skilled labor, have been hit significantly. Just like in America, the Japanese economy does not have a boom and with the economy not experiencing growth, companies worse off in offering higher wages. Companies have been trying to cut hours in a bid to hire cheap labor.
The cheap labor has to be solicited from the elderly due to the demographic imbalance that has been ailing the country. Despite being one of the largest economies of the world, 30% of Japan’s population is over the age of65 years,and more than half of this group of people is still working. The older people are seeking employment propelled by the uncertainty of their own economic future. The companies, on the other hand, take advantage of this, employing them in the bid to keep labor costs at minimal. Another move that the companies are adopting is automating their operations while others have been cutting business hours. This has enabled them to regulate and keep labor costs at their minimum.
Theoretically, the unemployment rate and wages rates are closely related, when a high percentage of industrial income is spent on wages, there is a high likelihood of a rise in employment (Piore, 2017). The scenario in Japan does not reflect this,and it can in part be explained through the demographic situation.Aging population can introduce a number of challenges to the labor market among other economic issues. The tight labor market is a result of an aging population, with the technological application being applied to collect the issue which in part have maintained the wages constant.
For the 2019 fiscal year, Japan’s government budget went over the threshold. This was by ¥ 2 trillion, where the funding is a measure to alleviate the effect of consumption cost that was enacted in October 2018. The budget status is seen as a measure to regulate domestic demand as well as the general budget which have on a number of times categorized as being the worst as compared to other major economies of the world.
The Japanese government has ambitions to have a balanced budget and have fiscal consolidation by the year 2025. The government plans to raise tax revenues and reduce the number of bonds issued. The problem is that the budget continues to experience deficit and the government has to borrow in order to cover a third of its overall budget. If the situation is not kept in check and cash flow fails to improve there is an estimated of a budget deficit of about ¥ 2.4 trillion by 2025. The 2019 budget has covered free pre-primary education among other projects,and the government offers that measures have been taken aimed at alleviating the shock from the increase in consumption tax. There is still fear that financial status may not improve as the government increases spending for different public projects.
A budget may be balanced, unbalanced and we can have a case of a surplus budget. These budget statuses come about when government expenditures are more, less or equal to the revenues collected. In a bid to regulate the budget the government can change tax rates or borrow funds to offset budget deficits. The government regulates economy through the budget; this comes through keeping spending in check and regulating the revenues sources especially taxation and borrowing (Waldavsky, 2017). The Japanese government is in such a quest focused to maintain a stable economy and facilitate public projects.
As compared to 2017 the Japanese economy has improved with less decline, the decline in 2017 was by 1.7%,but it reduced to 0.9% in 2018. This can be attributed to the increase in household spending as well as the net trade and the corporate investment that did well although public investment madea contract. Japanese economy sustained growth above potential with a tight labor market; the unemployment rate did fall while the level of growth remained volatile. The extreme natural disasters that came about in 2018 negatively affected the economy and a consumption tax expected in 2019 is meant to abate the situation. The government, however, aims to be careful considering the 2018 consumption tax hike that caused a technical recession.
The government has put a number of measures corrective in nature, for instance, food was exempted from tax. The expectation is that by 2019 economic growth will be less volatile and will stabilize, with job creations, the rise in nominal wages and inflation will be regulated.The government has taken such measures as qualitative and quantitative easing (QQE), Japanese government bond (JGB) to cushion against recession. However, fear exists that there are few monetary policies options for the government to keep another recession in check. Polices used have had side effects such as the reduced profitability of banks and other financial institutions.
Recessions are associated with a decline in economic activities, which affects the growth of the overall economic growth. Economic indicators like the gross domestic product, employment, employment rate as well as corporate profits among others, display a decline during a recession (Liu &Moench, 2016). Just like the Japanese government have been taking measures, governments in the efforts to keep recession in check, enact policies to supply more money in the economy. There is increased spending, reduced interest rates,and taxation is reduced.
From the above analysis, it can be concluded that Macroeconomics is a broad field of study on itself. The field helps to understand how the whole large economy operates through economic indicators such as recession, wages and unemployment, GDP, inflation, price indices,and national income.
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Brunnermeier, M. K., &Sannikov, Y. (2016). On the optimal inflation rate. American Economic Review, 106(5), 484-89.
Liu, W., &Moench, E. (2016). What predicts US recessions?.International Journal of Forecasting, 32(4), 1138-1150.
Piore, M. (2017). Unemployment and inflation: institutionalist and structuralist views. Routledge.
Wildavsky, A. (2017). Budgeting and governing. Routledge.