Download Does Japan Need a Strategy to Achieve Growth: Issues and

Does Japan Need a Strategy to
Achieve Growth: Issues and
Problems Facing the Economy
Edward J. Lincoln
NYU Stern School of Business
October 7, 2010
1
Background
• Successful catch-up 1870s-1970s.
• “Bubble” 1985-1991 – 5% average annual
growth and a tripling of real estate and stock
market prices.
• “Lost decade” 1992-2002: 0.8% annual growth
• Recovery 2003-2007: 2.0% growth
• Recession 2008-2009: GDP falls 5.5%, driven
by exports.
• Recovery and longer term future?
2
Issues Going Forward
• How to solve deflation
• Is government deficit/debt a problem?
• Will the financial sector perform adequately?
Other
Panelists?
• How much more deregulation/structural reform does Japan
need?
• Can exports drive economic growth?
• Demographics: the implications of a falling and aging
population.
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1. Deregulation/structural reform
• Outmoded economic system was not the main cause of
the problems of the 1990s, but poor performance
focused attention on reform to improve future growth.
• Considerable change 1990s-2000s.
• Remaining areas: Some services still hampered by
regulation.
• Problems: Does the Democratic Party of Japan believe
in regulatory change? (privatize Postal Savings and
Postal Life Insurance or not?)
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2. Reliance on Exports
• Growth recovery 2003-2007 was highly dependent on
exports.
• Difficult to sustain this reliance going forward due to:
– Weak economic recovery in the U.S. and Europe
– Stronger yen?
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-20
-40
30
Imports
60
Exports
5
Public
Investment
11
Government
Consumption
-10
Private
Residential
Investment
Private
Non-Resi.
Investment
10
Household
Consumption
-30
GDP
Percent
Japan's GDP Components
Change 2002 to 2007 in Real GDP
58
50
40
30
26
20
8
0
-9
-36
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7
Real Effective Exchange Rate of the Yen (2005=100)
160
140
120
100
Average = 102
80
60
40
20
0
1980
1985
1990
1995
2000
2005
2010
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3. Demographics
• Total population is falling
• Population is aging rapidly
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Mid-term Projection of Total Population
140
130
120
2005
100
High Estimate
90
Median Estimate
80
Low Estimate
70
60
50
2050
2045
2040
2035
2030
2025
2020
2015
2010
2005
40
2000
Thousands
110
10
Fertility Rate in Japan
4.0
3.5
3.0
steady state = 2.1
2.5
2.0
1.5
1.0
0.5
0.0
1950
1960
1970
1980
1990
2000
11
Percentage of Unmarried Women in the 35-39 Age Cohort
30
25
Never Married
Divorced
Widowed
Total Not Married
20
15
10
5
0
1965
1970
1975
1980
1985
1990
1995
2000
2005
12
Number of people aged 20-24
(in thousands)
10,000
-32% from 1995
-45% from 1995
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1995
2000
2005
2010
2015
2020
2025
2028
13
Population 65+ to Total Population
30
25
Percent
20
15
Japan
10
United States
France
United Kingdom
5
Germany
0
1990
1995
2000
2005
2010
2015
2020
14
0
4.3
2.6
2.0
1.5
Finland
Japan
3.1
Italy
Spain
4.5
Norway
5
4.9
U.K.
5.3
Denmark
5.6
Sweden
5.6
Ireland
France
8.2
Greece
8.8
Belgium
8.9
Austria
10
Germany
U.S.
20
Canada
30
Australia
Percent ofTotal Population
Foreign Population 2008
27.1
25
18.2
15
11.5
7.0
15
1.8
Ratio of Foreigners to Total Population
1.6
1.4
Percent
1.2
Ratio all foreigners
Excluding Koreans
1.0
0.8
0.6
0.4
0.2
0.0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
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How to Ensure Future Growth?
• More deregulation/reform
• Sexual equality (enable women to achieve their potential
in workforce)
• Pursue pro-family policies
• Greater international economic openness to increase
positive competitive pressures from imports and foreign
firms operating in Japan.
• Greater international human openness (more immigrants
more foreign students in universities; more Japanese
studying abroad)
All of these represent difficult changes.
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