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Japan Economy At Glance For Over A Decade Japan Has Been Struggling To ...


JAPAN
Economy at glance
For over a decade Japan has been struggling to overcome a lengthy recession; currently its revival pace has shown symptoms of recovery although experts are unconvinced to conclude that current events are part of a long-term cycle. (See chart A)
Real sector is on an upturn trend and expected to grow by 3% in 2006; in the meantime inflation levels have positively returned to positive numbers indicating a more dynamic performance in terms of internal consumption as prices will be expected to reach a 0.5% increase in 2006. Unemployment, even though its magnitude compared to industrialised nations is rather low, after reaching 5.5% in 2002 dynamism in enhancing employment opportunities has progressed.
Chart A: Japan Economic Performance (1998-2006*)


Background
Japan is the world's second largest economy with a GDP in 2006 of US$ 4.96 trillions
and place of one of the largest industrial conglomerates around the world. (The Economist, the world in 2006) Conversely, over the last decade the economy has featured a lengthy recession and currently the largest national debt of any developed economy reaching 160% of its GDP. This scenario has exposed the economy to high vulnerability to interest and exchange rates in relation to its debt service (Economist Intelligence Unit).
Since Japan regained independency in 1952, the political stability was characterised by a merger into the liberal Democratic Party (LDP) sustaining its position until the mid 1990s. This unanimous authority has support the progress of the economy by pursuing a market-oriented policy that promoted liberalisation on all the sectors resulting in a rapid growth (Yoshiro Miwa, 2004, p129-130).
In the 1970s, the economy faced rising domestic labour costs, energy intensive and high pollution. As a result, Japanese firms began to relocate labour intensive companies and environmentally less acceptable industries to South East Asia. This relocation was encouraged by governments to reshape the industrial structure of the economies. Moreover, Japan has been consistent with their private business interest and at the same with the development cycle replacing sunset industries and focusing on sunrise industries and technologies. (Aryeetey, 2003, p68-69)
The financial system has played an important role through backing industries to grow rapidly relying on borrowing. The system has been highly influenced and shaped by the recognition and expectation of market participants and high confidence from the government. The government regulations over the financial system have stimulated investments in strong sectors executed in line with the evolution of the economy. (Osakazaki, the Economic development of Modern Japan, p261- 262)
Nevertheless, the country's rapid growth has fallen over the last 15 years as the country has suffered a continuous recession affecting significantly several key sectors and people's living standards.


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