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Japanese Economics: Japan Matters

posted 23 May 2011, 02:01 by Web Admins ‎(Ben Caesar)‎   [ updated 23 May 2011, 02:17 by Admins ‎(Halima Chen)‎ ]

Professor Kaneko considers Japan's relevance in a rapidly globalising world.

Kaneko Masaru is Professor of Economics, Keio University. He specialises in economic institutions and public finance. Professor Kaneko is also one of Japan’s best-known public intellectuals.  This article was translated from Japanese by Andrew Dewit, Professor of the Politics of Public Finance, Rikkyo University.

Japan matters because of its sheer economic scale. Even after about fifteen years of post-bubble low growth and several recessions, the country still ranks among the top global economies. This becomes evident when the relative size of Japan’s Gross Domestic Product measured by the World Bank in “international dollars” (ID) - a hypothetical currency reflecting purchasing power parities - is compared to other global economies. By this measure, the US remains the world’s largest economy at about 13.2 trillion ID, China ranks a close second at just over 10 trillion ID, and India sits at third place with a little above 4.2 trillion ID. Japan has slipped into fourth place, with slightly more than 4.1 trillion ID. But that still leaves Japan far larger than fifth-place Germany, which trails a fair distance behind at 2.6 trillion ID. The UK, meanwhile, ranks 6th, at just under 2.1 trillion ID. Thus, even if Japan fails to startle the world with another so-called miracle economy, it will at the very least remain, for decades to come, at the very front ranks of the international economic community.

Japan is also one of the world’s most competitive economies. As is generally recognised, the country is handicapped by its comparatively low utilisation of women and foreign skills as well as stubbornly poor productivity in non-traded sectors. But even so, Japan’s overall competitiveness consistently ranks among the top ten in World Economic Forum surveys. In the 2007-2008 World Economic Forum Global Competitiveness Index, Japan ranked eighth, just behind Singapore but a notch ahead of the UK.

In addition, the Japanese yen is a key global currency. The yen has of course been comparatively weak in recent years, due to the Bank of Japan’s policy of extremely low interest rates. The policy has been a source of considerable consternation in the Eurozone, as the US dollar and Japanese yen have both fallen against the Euro and left the latter to shoulder much of the burden of an unbalanced global economy. But together with the Euro, the yen may indeed emerge in an even more central position over the next several years. This is because the fallout from the rapidly worsening sub-prime financial crisis started in the US looks set to further undermine the dollar’s global role.

Finally, Japan matters as an important case study in comparative capitalism. In spite of all the rhetoric about globalisation and convergence in the 1990s, we find that national economies - and especially the increasingly salient city-regions within them - remain very diverse. Indeed, in many policy areas, Japan now confronts challenges that the rest of the industrialised countries are set to deal with in the visible future. Ageing is prominent among these areas, as Japan’s “silver” generation of over 65s topped 21.5 per cent this year. Thus the study of Japan’s social, energy, environmental, and other policy regimes can offer other countries valuable clues in how to deal with contemporary policy challenges. As an officially recognised Centre of Excellence, NIJS serves as an appropriate venue to conduct research in these crucial areas.

Please note: The views expressed in here are those of the individual author and do not necessarily reflect those of NIJS, the White Rose East Asia Centre, the University of Sheffield, or the University of Leeds.