The document provides information about Japan's economy and political factors. It discusses Japan's status as the third largest economy in the world but one that is highly dependent on exports and vulnerable to external shocks. It notes that while Prime Minister Abe's economic reforms have helped growth, public debt remains very high and population aging is a concern. Key political factors discussed include Japan's stable one-party rule by the LDP and influence of bureaucratic ministries.

1. Name: Hafsa Khan
Roll no: 2k13/BPA/78
BS-IV
Subject: International Financial Management
Topic: Economical and Political factors of Japan
Submitted to: Mam Noureen Bhutto
Department of Public Administration

2. INTRODUCTION:
Japan’s nickname, the Land of the Rising Sun„, comes from its location on the edge of
the Eastern hemisphere and is an appropriate analogy for its economy. At several times
throughout its history, Japan has risen to the level of a major economic world power.
Due to its dramatic post World War II growth, Japan’s industrialized free market
economy is the third largest in the world; however, Japan has suffered due to recent
global economic conditions (CIA-The World Factbook, 2009). When worldwide demand
for its exports decreased dramatically in 2008, Japan entered its first recession in six
years. Real GDP growth, as reported by the Bank of Japan, was - 1.8% in 2008 and -
5.2% in 2009. Forecasts for 2010 call for minimal growth (U.S. Department of State,
2009). Japanese business culture is wrongly perceived as the biggest obstacle to
starting business in Japan for many foreign companies thinking of entering the
Japanese market. Many foreign companies never do start business in Japan (or only
enter the Japanese market through a distributor) simply because of the misconception,
fueled by those infamous myths of doing business in Japan, that dealing with Japanese
business culture is somehow too risky. Fortunately, Japanese business culture is not an
impenetrable barrier to successful business in Japan, as proven by the very substantial
Japanese market share enjoyed by Yahoo!, BMW, Mercedes- Benz, Chanel, Louis
Vuitton, Tiffany & Co. and many others. Inevitably Japanese business culture is different
to that of the US or Europe, but the differences do not make it any more risky to do
business in Japan than elsewhere in the world. In fact, certain aspects of Japan's
business culture, especially the very stable long-term relationships resulting from the
conservative Japanese sense of loyalty to trusted partners, can be very beneficial for
those foreign companies that understand how to swim with the cultural tide as opposed
to vainly struggling against it. The economy of Japan is the third largest in the world by
the Gross Domestic Product (GDP) in Japan was worth 4601.46 billion US dollars in
2014, the fourth largest by purchasing power parity that is $4.70 trillion (2013 est.) and
is the world's second largest developed economy. According to the International
Monetary Fund, the country's per capita GDP (PPP) was at $36,899, the 22nd-highest
in 2014. Japan is a member of the G7. The Japanese economy is forecasted by the
Quarterly Tankan survey of business sentiment conducted by the Bank of Japan. Nikkei
225 presents the monthly report of top Blue chip (stock market) equities on Japan
Exchange Group. Due to a volatile currency exchange rate, Japan's GDP as measured
in dollars fluctuates widely. Accounting for these fluctuations through use of the Atlas
method, Japan is estimated to have a GDP per capita of around $38,490.
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japan
ECONOMICAL FACTOR OF JAPAN:
Japan, the world's third largest economy, is highly exposed to external shocks because
of its strong dependence on exports. This vulnerability has been on display in recent
years, as its economy experienced periods of recession alongside the slowdown in the

3. global economy. Natural disasters and backlash to the 2014 VAT increase have
furthered this recessionary trend. In 2015, growth remained sluggish (0.6%), driven by
foreign trade and public consumption. It is expected to rebound slightly in 2016, led by
strong exports and household consumption.
In 2015, the limits of 'Abenomics'—the economic reforms led by Prime Minister Shinzo
Abe—became even more apparent. Despite a budget stimulus plan, monetary easing
and structural reform, growth remained weak, the danger of deflation loomed and public
debt continued to remain very high (over 245% of Japan’s GDP). In June 2015, the
Government repeated its commitment to reach a primary surplus by 2020. A
contingency plan was announced in November 2015, increasing the minimum wage by
3%, introducing support measures (such as the extension of access to unemployment
insurance and aid to pensioners) and streamlining administrative procedures to
encourage SMEs to invest. The unemployment rate, which increased as a result of the
global financial crisis, remains moderate at about 3.5%. Looking to trade, the Trans-
Pacific Partnership (TPP) was signed in February 2016, but has not yet been ratified.
The free trade agreement is aimed at harmonising standards and reducing tariffs in
order to counterbalance the growing influence of China.
Moving forward, budgetary consolidation will remain a key issue for the country as it
tries to bring its debt levels under control. The ageing of the population and political
tensions with China and South Korea are additional concerns that Japan will have to
address in the years to come.
Main Indicators 2012 2013 2014 2015 2016 (e)
GDP (billions
USD)
5,957.25 4,919.59 4,602.37 4,116.24e 4,170.64
GDP (Constant
Prices, Annual %
Change)
1.7 1.6 -0.1 0.6e 1.0
GDP per
Capita (USD)
46,683 38,633 36,222 32,481e 33,010
General
Government
-7.8 -8.2 -6.8e -5.5e -4.3

4. Main Indicators 2012 2013 2014 2015 2016 (e)
Balance (in % of
GDP)
General
Government
Gross Debt(in %
of GDP)
236.6 242.6 246.2e 245.9e 247.8
Inflation
Rate (%)
-0.0 0.4 2.7 0.7e 0.4
Unemployment
Rate (% of the
Labour Force)
4.3 4.0 3.6 3.5 3.5
Current
Account (billions
USD)
59.70 40.70 24.40 124.35e 126.55
Current
Account (in % of
GDP)
1.0 0.8 0.5 3.0e 3.0
http://www.suddefrance-developpement.com/en/country-profiles/japan/political-outline.html
FACTORS OF JAPANESES ECONOMIC
SUCCESS:
It is true that industrial policies in Japan have made a considerable contribution to the
rapid expansion of the Japanese economy over the last 50 years. At the same time, we
should bear in mind that Japan’s economic success was not brought about only by an
industrial policy. Rather, it was an ideal mix of external and indigenous factors that led
to the country’s economic development.
External Factor:
The external environment surrounding post-World War II Japan was very beneficial for
the following reasons:
 A free-trade system was secured under the IMF-GATT regime.

5.  National resources and energy abroad were abundant, inexpensive and readily
available due to relatively stable international relations.
 Advanced technological innovations were easily obtained from around the world.
 The initial period of economic expansion in Japan coincided with a period of world
economic growth.
Indigenous Factors:
Post-World War II Japan also enjoyed favorable domestic factors - the root of economic
success. These factors included the following:
 Japanese society was characterized by high levels of education and a high
degree of social mobility, and the domestic economy retained its inherent
disposition to competition.
 Japan achieved high labor performance through diligent Japanese workers, life-
long employment together with seniority-based wages, independent labor unions
based on individual companies that are usually cooperative with employers, and
other so-called ‘Japanese-style employment practices’.
 Japanese managers were able to plan long-term investment for profits because
companies were relatively free from dividend payment requirement, mainly as a
result of the weak control exerted by shareholders.
http://www.passia.org/seminars/99/japan/factors.htm
ECONOMIC ISSUES:
The Toyota Recall:
 Announced the vehicle recalls on three continents and shut down five
assembly plants in the US.
 A downgrade in the Japanese government's credit rating because Prime
Minister Yukio Hatoyama is moving too slowly to reduce the debt.
 China overtook japan as the world’s largest maker of cars, according to an
announcement from the Japanese Automobile Manufacturers Association.
The working-age population:
 Collapsing - according to some economists.
 Japan has fewer children and more senior citizens as a percentage of its
population than any country in recorded history, but the government does little
to encourage childbirth or enable immigration.
 Japan's economy remains addicted to exports for growth.
 Deflation, the curse of the "Lost Decade" of the 1990s. Prices and wages are
falling as aging consumers save their pension checks and wait for still-lower
prices. Because of the seniors in Japan the consequence.
Debts:

6.  Japan's public debt is the highest among industrial countries as a percentage
of GDP, but it is probably not going to be the problem that sinks the economy.
For unlike the United States, which has borrowed heavily from China, Japan
borrows almost exclusively from its citizens.
Employment “ice-age”:
 68.8 % of those graduating from a university receives a job offer. There is an
obvious decline in employment.
http://www.slideshare.net/nicz_94/economy-of-japan
POLITICAL FACTORS OF JAPAN:
The Japanese political and legal system presents a complex picture. On the
one hand, Japan is a democratic state, with strong civic and legal institutions.
On the other hand, the country has characteristics of nondemocratic systems.
It is a democracy yet just one party, the Liberal Democratic Party (LDP), has
run the country almost continuously since the end of World War II. Japan is
highly bureaucratic as well. Decisions affecting national policy are often made
by ministries with substantial power and influence and ties to business and
industrial groups. As a result, it is often said that Japan lacks the pragmatic
approach to change that is common in Western democracies, and this is seen
as contributing to Japan‟s extended economic malaise. To most foreigners,
Japanese politics may appear somewhat puzzling. Policy does not seem to
change regardless of whom is leading the country, and, in fact, that‟s the
argument the person in the street gives when asked about his or her lack of
interest in politics. “Why bother, nothing changes.” Actually, most legislation
isn't produced by the members of the Diet but by ministers and bureaucrats.
The policy-making process in Japan is more similar to the parliamentary
systems of Europe and contrasts with the American system, in which
presidential appointees attempt to exercise control over branches of the
bureaucracy on behalf of the president. It's not uncommon in Japan for the
influence and power of a Japanese ministry or agency to outlive the reign of a
prime minister, as evident in the powerful Ministry of International Trade and
Industry, better known as MITI. Not surprisingly given the culture, the
Japanese political system also has a tradition of group rather than
personalized leadership. Elderly statesmen and party chiefs, not individual
prime ministers, often make political decisions. Cabinet members are usually
appointed to head ministries or agencies for very brief periods of time and at
most establish only general policy control. Recently, commentators have
begun to question this lack of action. Japan‟s legal system is very different
from what most Westerners are used to. For example, only since 1986 have
foreign legal consultants (Gaigokuho-Jimu-Bengoshi) been allowed to provide
legal services. The requirements were modified in 1994 with the signing of the
Amendments to the Foreign Attorney Law. In certain types of practices,
licensed legal consultants from other countries can now practice together with
Japanese attorneys. Anyone planning on doing business in Japan should
bear in mind that prefectures and municipalities may create laws and

7. regulations independently of each other, so long as they do not contradict
national laws. In other words, there are local laws and regulations in addition
to laws that are consistent and uniform throughout the country. Each of the 47
prefectures may have a slightly different requirement concerning paperwork,
for example The Japanese are not very litigious; they generally prefer
arbitration and compromise to instituting lawsuits. Lawyers encourage
settlement out of court for all disputes, and the amount of money awarded as
compensation is a fraction of the amounts awarded in America, for example.
One of the most significant differences between Japanese law and the law in
many other countries has to do with the power of contracts. Japanese
contracts are not necessarily meant to be binding. Rather, founded on trust
(shinyô), they're often more short statements of mutual intent. The
assumption is that if a change occurs in the circumstances of the contract, the
terms will be renegotiated.
CONCLUSION:
Japan is the 3rd largest economy in the world. It is the UK‟s 2nd largest
export market after Europe and the US, and one of the leading inward
investors in the UK. With a GDP 1.5 times the size of the UK and GDP per
person about 6 times that of China, Japan remains the high-tech powerhouse
economy of Asia - with the 2nd highest spend worldwide on R&D, a hunger
for IP and new trends, and an increasingly globalised outlook. Japan‟s
households hold financial assets of 1645 trillion yen (more than 300% of
GDP). Japan‟s major growth driver is exports despite external demand
accounting for 16% of its total GDP. Average annual economic growth since
2012 has been around 1%. The OECD expects the economy to grow by 0.7%
in 2015 and 1.4% in 2016. Strengths According to the 2009 World
Competitiveness Rankings issued by the World Economic Forum, Japan is
the 8th most competitive country in the world. Japan enjoys a comparative
advantage due in part to its world-class business sophistication and
innovation. Its business sophistication is a product of Japan„s value chain
breadth, control of international distribution, and product process
sophistication, each of which are considered the best in the world. Japan„s
capacity for innovation comes from its reservoir of scientists and engineers
as well as high company spending on research and development. Japan is
ranked second in the world in each of these categories, trailing Finland in
availability of scientists and engineers and Switzerland in spending on
research and development. The strength of Japan„s workforce is not limited
to its scientists and engineers. The group orientation of the Japanese people
lends itself to employees that are loyal and dependable. There is an
especially high cultural fit with manufacturing which is evident in Japan„s
18.3% share of the manufactures imported into the U.S. Japan was among
the top twenty countries for the areas of getting credit, protecting investors,
and trading across borders. Japan was ranked first for ease of closing a
business, with an average recovery rate of 92.5 cents on the dollar.

8. Weaknesses Japan„s overall competitive performance is adversely affected
by its macroeconomic weaknesses. Its consistent annual budget deficits have
built up into one of the largest public debt levels in the world. In 2008, Japan„s
public debt was 196.29% of GDP, or $8.63 trillion. The soundness of
Japanese banks is also an issue, as economists estimate as much as one
trillion dollars in bad debts on the banks‟ books. The banks are reluctant to
call in these bad loans, and the government is reluctant to force the issue.
Another weakness of the Japanese economy is inefficient government
bureaucracy. Nearly 17% of companies who responded to the World
Economic Forum„s survey noted inefficiencies of government as the most
problematic factor of doing business in Japan. The strong association
between the government and business leads to policy instability that
increases the cost of doing business in Japan. Another factor increasing the
cost of business is the high corporate tax rate of 55.7% of profits.
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japan