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JAPAN FINAL WPS Office

Japan, the third-largest global economy, is recovering from supply interruptions with projected GDP growth of 1.1% in 2025, supported by government assistance and wage growth. The country faces challenges such as an aging population, labor shortages, and trade dependence, while also having opportunities in technological leadership and renewable energy development. Structural changes in both public and private sectors are essential to maximize Japan's economic potential and address risks like inflation and rising trade barriers.

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19 views6 pages

JAPAN FINAL WPS Office

Japan, the third-largest global economy, is recovering from supply interruptions with projected GDP growth of 1.1% in 2025, supported by government assistance and wage growth. The country faces challenges such as an aging population, labor shortages, and trade dependence, while also having opportunities in technological leadership and renewable energy development. Structural changes in both public and private sectors are essential to maximize Japan's economic potential and address risks like inflation and rising trade barriers.

Uploaded by

Bini Biro
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© © All Rights Reserved
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Introduction

Japan, the third-largest economy globally, faces challenges due to its strong
reliance on exports and high debt-to-GDP ratio. Despite temporary supply
interruptions in early 2024, the economy recovered in the second part of the
year, with domestic demand growing and real GDP growth predicted to reach
1.1% in 2025 before leveling off at 0.8% in 2026. Government assistance, wage
growth, and declining inflation are expected to boost private consumption and
business investment.

Japan's general government deficit fell to 1.9% of GDP in FY23, driven by


inflation-boosted revenues and a spending cut. The central bank's monetary
strategy and strong domestic investor base help maintain low bond yields and
support government financing despite policy tightening. Japan's rating is
further bolstered by persistent current account surpluses, a large external asset
position, and the yen's reserve currency status.

Japan's political structure is a constitutional democracy, with the central


government divided into legislative, judicial, and executive branches. The
Emperor is the symbol of the state and unity of the people, with no political
power. The government's operations are divided into the legislative, judicial,
and executive branches, with the National Diet serving as the highest organ of
state power. The Prime Minister, appointed by the Emperor, enjoys executive
powers, including law implementation and day-to-day affairs. However, the
government faces challenges due to the ruling LDP-Komeito coalition losing its
majority in the Lower House elections. The Prime Minister's foreign policy
includes strengthening Japan's defense capabilities and exploring the possibility
of sharing U.S. nuclear weapons in the region. The government's executive
branch is dependent on the support of the National Diet, often expressed
through a vote of confidence. The aging society and declining birth rate pose
significant challenges for the government, as the government's spending on
pensions and healthcare continues to rise.

Japan’s working-age population has been declining for a few decades, but that
has been offset by rising participation, helping in employment growth and
maintaining a low unemployment rate (at 2.5% in 2024, with a stable outlook
over the forecast horizon as per the IMF). Finally, Japan enjoys a high GDP per
capita, estimated at USD 54,907 in 2024 by the IMF (PPP).
Trade and Economic Policies

Japan is one of the top exporters in the world and is heavily dependent on trade.
It uses a mixed-market approach and participates in international trade through
a number of agreements. economic framework. The Japanese government
uses a range of economic strategies, such as:

1. Monetary Policy

The Bank of Japan (BOJ) keeps its monetary policy extremely loose.
maintaining low interest rates to promote investment and borrowing.
Additionally, it conducts bonds. purchases to boost the economy. But this has
raised questions regarding long-term monetary stability.

2. Fiscal Policy

The Japanese government places a high priority on innovation, infrastructure


investment, and packages of economic stimulus. With its governmental debt
of 245% of GDP, Japan has the largest among wealthy countries, calling for long
-term fiscal changes.

3. Trade Policies

Japan has signed multiple trade agreements to boost exports and economic
cooperation:

(a) Comprehensive and Progressive Agreement for Trans-Pacific Partnership


(CPTPP)

(b) EU-Japan Economic Partnership Agreement (EPA)

(c) ASEAN-Japan Comprehensive Economic Partnership

(d) U.S.-Japan Trade Agreement (focusing on auto exports and agricultural


imports)

Japan balances open trade policies with protectionist measures in agriculture


and domestic industries. Despite trade liberalization efforts, challenges remain
in ensuring a stable balance between exports and imports.
Key Global Interactions

Japan's economic strength depends on its global trade relations. The country's
major

trade partners include:

1. United States

Japan exports automobiles, electronics, and industrial machinery, while


importing agricultural products and energy resources.

2. China:

The largest trading partner, exchanging electronic components, chemicals, and


automobile parts. However, political tensions often affect economic ties.

3. European Union:

Japan maintains strong trade relations with Germany, France, and the UK,
particularly in the automotive and pharmaceutical industries.

4. ASEAN Nations:

Japan has extensive trade agreements with Southeast Asian countries,


supporting industrial growth in the region.

Japan is an influential member of international organizations, including IMF


(International Monetary Fund): Contributing financial assistance and policy
advice for global economic stability. WHO (World Health Organization): Actively
involved in health and pandemic response policies. OECD (Organisation for
Economic Co-operation and Development): Promoting economic cooperation
and sustainable growth strategies. Japan also faces trade disputes, particularly
with China over territorial claims in the East China Sea and with South Korea
regarding historical grievances and economic restrictions.
Challenges and Opportunities

Japan's economy faces several challenges:

1. Aging Population & Labor Shortages:

With nearly 30% of its population over 65, Japan struggles with a shrinking
workforce. Immigration reforms and AI-driven automation are potential
solutions.

2. Deflation and Economic Stagnation:

Despite inflationary pressures, real wage growth remains weak. The BOJ
continues monetary easing, but consumer confidence is low.

3. Trade Dependence & Supply Chain Issues:

Japan's reliance on semiconductor imports and energy resources makes it


vulnerable to global supply chain disruptions.

4. Geopolitical Risks:

Territorial disputes with China and trade conflicts with the U.S. pose risks to
Japan's economic future.

Despite these challenges, Japan has significant opportunities:

Technological Leadership:

Japan remains at the forefront of robotics, AI, and automotive advancements,


ensuring global competitiveness.

Renewable Energy Development:

Expansion of solar, wind, and hydrogen energy can help Japan reduce
dependence on imported fossil fuels.

Digital Economy Expansion:

Growth in e-commerce, fintech, and smart manufacturing can drive Japan's


next economic wave.
CONCLUSION AND RECOMMENDATION

Japan's recovery has been slow, with real GDP still slightly below its pre-
pandemic peak. Government consumption and exports have reached new highs,
but domestic household consumption remains 1.4% below 2019. The
government's support and a weak yen will continue to support goods exports
and tourism, but there are risks to this outlook, such as inflation and rising trade
barriers. To revive the Japanese economy, serious structural changes in both
public and private sectors are essential. Japan's financial foundations are sound,
with household financial assets totaling 1,200 trillion yen and net external assets
surpassing 100 trillion yen. Manufacturing firms, including small and medium-
sized businesses, have a competitive advantage in precision machines, liquid
crystals, and semiconductors. Japan's skilled and hardworking workforce,
bolstered by globally recognized educational standards, provides a solid
foundation for growth. To maximize the potential of the Japanese economy and
preserve its advantages, the old system must be swiftly replaced. Investing
heavily in future-oriented social overhead capital should be the focus of the
next ten years of Japan, with the government handling this investment
holistically without devolving into sectionalism. Strategic programs such as
housing, social welfare, education, human resource development, information
infrastructure, urban renewal, and the environment are crucial for the
governance of the twenty-first century.
CASE STUDY REPORT

JAPAN

Submitted by.

ABALAJEN, ART JOSEPH

ABRIS, NEIL JOHN

CHUA, REESE

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