JAPAN – ECONOMICS

On this page:

• Summary
• Economy and GDP
• Trade Policies and trade with Australia

Summary

Japan is the world’s second largest economy and has the third largest by GDP. It has the world’s largest electronics industry and has the third largest vehicle manufacturing industry in the world to date.

Japan’s economy was devastated at the end of World War II; however, recovery was relatively quick, and from the 1960s to the 1980s Japan enjoyed good economic growth. The 1990s was a period of recession known as the ‘lost decade’, following the collapse of the so-called ‘economic bubble’ of the 1980s. Since the turn of the century, Japan’s economic recovery efforts have been hampered by a global recession, an earthquake and a tsunami.

This video gives a good overview of Japan’s economy:

Economy and GDP

The Abe Administration implemented ‘Abenomics’ which contributed to ending the period of Japanese deflation early in the Prime Minister’s tenure but overall, was not as successful as anticipated.

Under Abe, the Japanese Government aimed to promote investment and spending to raise the GDP. To support this, the government made significant financial investment on infrastructure and doubled its consumption tax to help increase public spending; however, the GDP did not increase as much as predicted. The Covid-19 pandemic has impacted Japan’s economy somewhat, but it did recover towards the end of 2020. The first quarter of this calendar year, saw Japan’s GDP drop by 1%.

The Covid-19 pandemic brings its own challenges for Prime Minister Suga in building economic growth; but none of these challenges to the economy are as impactful as Japan’s biggest problem: its ageing population and the shortfall in the workforce. More than 20% of its population is over 65 years of age; furthermore, there is a decline in population due to decreasing birth rates.

For more information on the Japanese economy, see the following resources:

• Videos
  1. Japan's Demographic Time Bomb  (documentary)
  2. How Can Japan Solve its Population Problem?
  3. Robots at Work: Japan's 'robot revolution'

• Podcast
  1. Socio-economic changes in Japan

• Articles
  1. Japan’s Economy and GDP
  2. Japan: Economic and Political Outline
  3. DFAT: Japan’s Market Insights
  4. Japan Economic Data
  5. Lowy Institute: Asia Index Power rating 2020
  6. How does Japan’s Aging Society Affect its Economy?
  7. Abenomics after Abe
  8. Japan: Real gross domestic product (GDP) growth rate from 2016 to 2026

Trade Policies and Trade with Australia

Japan has free trade agreements with several countries including Australia, New Zealand, Singapore, India, the UK and the EU. In early 2020, it reached a free trade agreement with the US. In 2021, Japan approved a free trade agreement between China, Australia and the Association of Southeast Asian Nations (ASEAN), the Regional Comprehensive Economic Partnership or RCEP.

This agreement is expected to support Japan’s future economic growth, raising its GDP by approx. 2.7%, an increase not achieved in the previous administration.  

Australia and Japan have had sixty years of mutually beneficial trade relationships and collaboration in mutual support to each other’s ‘economic growth. Australia’s biggest exports to Japan include natural gas, coal and iron ore. Japan supports Australia in car manufacturing, science and technology. While the Covid-19 pandemic has impacted upon global markets and trading, Japan and Australia’s economic relationship remains strong.  This video explains the Japan-Australia economic partnership:

For further information on Japan's Trade see the resources below:

• Videos
  1. Japan’s exports jump on solid US and China demand
  2. Australia to sign onto a 15 nation Asia-Pacific trade deal | ABC News
  3. Japan’s top 5 exports in under 2 minutes
• Articles
  1. Regional Comprehensive Economic Partnership - DFAT
  2. Japan-Australia Economic Partnership Agreement - DFAT
  3. Trilateral Partnership for infrastructure investment in the Indo-Pacific
  4. Trade disputes Japan and South Korea
  5. Trading Economics – Japan’s Exports Value by Country
  6. Australia-Japan Trade Relationship  
  7. Australia – Japan’s Relationship in Mineral Resources and Energy
  8. Japanese Support to Australia Over China’s ‘economic coercion’

Discussion questions

1. The 2020 Tokyo Olympics has been the most expensive on record. This has caused much discussion amongst the Japanese population about government spending. With the economic effects resulting from the Covid-19 pandemic likely to linger for years, should Japan seek to reduce or increase spending? What impact will that have on the region, and its relations with allies?
2. With China continuing to seek to roll out its ‘Belt and Road’ initiative across the region, there is a risk that smaller nations might feel pressured into shifting strategic alliances counter to Japanese interests. What can Japan do to remain economically influential in the region?
3. Both China and Japan are two of Australia’s largest trading partners, not only regionally but globally. Will any potential conflict of interest between these two Asian nations impact our trade relationships? What should Australia do to help maintain regional harmony between Japan and China?