Introduction
Macroeconomics in simple terms is the study of decision-making of an economy as a whole. The study of economic takes into account various economy-wide phenomena such as inflation, unemployment and economic growth amongst many other factors. Various governmental policies, economic performance or overall consumer participation helps determine these macroeconomic variables and in-turn documents a country’s overall economic growth. Despite being distinctive in their fields of study, microeconomic and macroeconomics are closely intertwined. While microeconomic analyses individualistic or household economic decisions, the study of macroeconomics cannot take place with accumulation of this knowledge to further study a country’s overall performance. Through my assignment I aim to analyze a country’s overall macroeconomic performance with the use of empirical research, data, economic variables, and overall economic activity.
Japan ranks as the third-largest economy in the world. One of the largest global manufacturing hubs, Japan has a heavily service-sector reliant economy. Known for its architecture, heritage and distinctive traditions, Japan is one of the most popular tourist hubs and earns a lot of revenues from its tourism sector. It primarily manufactures electronic equipment, metals, vehicular parts and energy oils. China, USA and South Korea are its largest trading partners, as the economy functions on its exports revenue. With one of the highest rate of literacy and amongst the most technologically advanced countries, citizens enjoy a high standard of living. However, the pandemic took a major blow at the Japanese economy. The country was facing a struggling economy and sluggish economic growth before the pandemic. The virus outbreak resulted in major changes in all economic variables and let to diving numbers. Through my assignment I intend to provide a well-researched account of the country’s economic statistics and macroeconomic conditions.
Macroeconomic variables
GDP
Gross Domestic Product is simply defined as the market value of all final goods and services produced within a country in a given period of time. GDP is measured within a domestic territory and helps in keeping an account of National Income. As GDP is only measured once the gross value of the final output of a market is ensured, it is to do with the production side factors of any country’s national income account. The calculation of a market’s GDP can be done by adding values of certain macroeconomic variables, as denoted by the formula below:
GDP = Consumption + Investment + Government expenditure + Net exports
(y) = [C]+ (I) + (G) + (NE)
The above factors help determine the national income identity of an open economy. Furthermore, GDP can be calculated in two forms, Nominal GDP and Real GDP respectively. While Nominal GDP calculates prices based on the current prices, Real GDP bases its calculations on a base period. Below is a detailed account of Japan’s GDP and growth trends varied over a time period keeping these factors in mind.
Time Period — 10 years (2009–2019)
GDP Growth rate graph
Analysis
As seen in the above data collection of GDP, a significant drop in the rate of GDP is witnessed in Japan from the financial year 2018 to 2019. The table records that there was an 8.34% decline in GDP in the year 2018 from the GDP rates in 2017. The GDP growth rate graph witnesses a sudden fall in an otherwise gradually rising linear growth trend. Despite being the third-largest economy, the country is reportedly being hit at its worst with a shrinking economy. The pandemic along with slow economic growth and brief periods of recession before the Covid-19 hit the country has caused an economic slump. Reports suggest that one of the main reasons for this is a drastic decline in domestic consumption that serves for more than half the country’s economy. Moreover, exports have also been put a halt to since global trade has fallen sharply. The covid-19 outbreak also took a blow at corporate expenditures. The country witnessed a fall of 11.3% in capital spending as corporate earnings decreased and capital expenditures were dismissed due to the pandemic. Fall in demand exports and lack of tourism has all shows its effect in the country’s economy by shrinking its GDP to drastic rates. The country is expected to recover as the markets slowly revive in the aftermath of the pandemic.
GNP
The Gross National Product is the gross value of final goods and services produced within or outside domestic territory. The GNP is calculated irrespective of location and measures the final output of a country including domestic and abroad exchanges. GDP and GNP are closely linked concepts; however GNP takes into account foreign residents whose income is reverted back to the domestic territory, along with all other exchanges completed abroad. Below is a table of Japan’s GNP rates along with GNP growth rate:
Time period — 10 years (2009–2019)
Analysis
The overall trend of GNP in the country has been quite stable. The GNP of the country witnessed a drastic fall between the financial years ranging from 2012 to 2015, as shown in the table as well as the graph representing growth trends. This was on account of the 2010 financial crisis that had spillover effects on the South Asian country for years. However, the country soon recovered as the GNP was steadily rising until the outbreak of the virus. Naturally, due to worldwide halt in economic growth, residents living abroad also faced cuts in income or employment. Production abroad or in foreign territory was hit as well as exports and imports came to a halt. However, the government has initiated monetary and fiscal policies to prevent a fall in GNP and do forecast revival of the economy soon.
GNI
Gross National Income is the total domestic and foreign output that a country’s citizens receive. In simple terms, it is the total amount of money earned by the people of a country. The national income consists of all forms of remuneration such as employee compensation, corporate profits, proprietor’s income, rental income and net interests among others. Given below is an account of Japan’s National income along with its growth trend.
Time period — 10 years (2009–2019)
GNI Per Capita
A country’s GNI Per Capita is the calculation of its final income i.e. its GNI, divided among the total population of the country. A country’s GNI per capita is a good measure to estimate the country’s standard of living, as well throw light upon levels of social and economic quality. Below is a measure of Japan’s per capita GNI and its growth trends:
Time period — 10 years (2009–2019)
CPI
Consumer Price Index is calculated my measuring the weighted average of prices of goods used by consumers including all facilities in a basket. The basket of goods is used to calculate the changes in price for each item (for example food, transportation, health care etc.) and an average is determined. Calculation of CPI helps keep track of inflation or deflation within a country and also comment on overall standard of living including accessibility to goods and services. CPI can be calculated in various ways, including calculations of two products, or using Laspeyrs Index. The index measures the CPI by making reference to a base year. It is calculated in the following way:
Laspeyrs index: ∑(Prices of the current year * Quantity of the base year)
∑(Prices of the base year * Quantity of the base year)
Below is the CPI index of Japan for all months of the year 2020, followed by a bar graph representing the changes in the index.
Base year = 2015
Analysis
Japan’s core consumer prices have received a major hit as recently prices dropped 1.0%, becoming the biggest drop the country has faced in 10 years. This threatens the country with high deflationary measures as it battles the deep effects of the pandemic. Experts claim that the large prices in drop are mainly due to fall in energy prices as well as the government’s travel subsidy program. Falling crude oil prices have led to drop in energy prices, a major source of revenue, as Gasoline prices go down by 8.9% and Kerosene products witness a 14.4% drop. The Go To travel subsidy program set up by the Japanese government resulted in a large drop in accommodation prices as domestic tourism and consumption took a blow. However, government officials brush off claims of deflation and state that these are temporary effects of the pandemic.
Exports and Imports
Japan is the 4th largest export economy in the world; its highest export and import materials being energy oils, metals, machinery etc. Partnered with China, USA and South Korea as its biggest trading partners, the country relies heavily on its foreign productions. China being one of its largest trade partners, the halt in trade and economic isolation towards china and overall global trade let to a 15% drop in imports and a 20% drop in exports. The export reliant economy is said to be on the brink of recession as sluggish numbers remain constant in the pre-pandemic and current economic scenarios.
Revival
Japan has one of the highest governmental debts. The country is undergoing a banking crisis and is on the brink of recession. With the implementation of economic policies and government subsidies, these issues could be resolved with macroeconomic measures. For example, printing of money to monetize the governmental debt and by implementing fiscal policies. Revitalizing the economy through industrialization and regional production will help maintain higher standards of living. Circulating economic flow by making full use of private utilities within the national territory will help reduce dependence on external trade. The cost of living in the country is extremely high, with reports suggesting the middle-class section of the society going into poverty. With an establishment of a new financial system and reforms aimed at development, the country can regain its economic steadiness.
Conclusion
In conclusion, through my assignment I have aimed at introducing macroeconomic variables, as well as providing data and empirically analyzing its role in Japan’s economy. By discussing factors and contemporary causes of economic changes in the country, I have intended to bring out the role of macroeconomic variables in any country’s economic growth. Through indicators such as GDP, GNI, CPI, Exports and Imports as well as suggestions for revival of the economy based on evidential research, this report aims to sum up macroeconomic factors of Japan.
