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No. 3 — January 21, 2000

Feature Article

JAPAN's ECONOMY IN THE 20TH CENTURY

Arthur J. Alexander

Summary

Since 1885, the Japanese economy has experienced almost 70-fold growth, with real gross national product per capita increasing almost 20 times. Before the Meiji restoration of 1868, doubling living standards took 150 years; afterward, the same gain occurred in 45 years. During the high-growth period following World War II, output per person doubled in the space of just the seven years between 1963 and 1970.

This century-long history of outstanding economic performance was the result of investment in plant and equipment, infrastructure and human capital. By 1905, almost all young people attended school, and literacy levels were close to 100 percent. In another indication of why Japan's economy expanded so strongly, gross domestic capital formation absorbed more than a third of total output at its peak in 1970.

Imports were essential elements of growth, providing the advanced machinery and technology that were missing in the closed, traditional economy. In later years, trade gave Japan access to inputs and equipment not produced at home. Exports were the means to pay for these critical requirements. In the prewar period, exports and imports were equivalent to 20 percent of total output, but they corresponded to only about half that value in the postwar years.

With the expansion of Japan's economy decelerating over the last two decades, policymakers, business executives and consumers have all had to adapt their thinking and behavior to the fact that growth no longer can mask inefficiency and low returns. Corporate Japan is restructuring to achieve higher profitability. However, the legacy of past practices and habits is slowing the process of adaptation.

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Weekly Review

YEN'S RALLY CONTINUED IN 1999 by Douglas Ostrom

Last year, the yen averaged ¥113.9=$1.00, a gain of 14.9 percent from its 1998 average (see Table 1). If history is any guide, this surge, which began in September 1998, has not yet run its course. Momentum may carry the yen higher for months, even years. Japan's currency rose against the dollar in eight months of 1999 in addition to increasing for four straight months in finishing 1998. The yen's 1999 yearend value was only slightly weaker than the year's high of ¥101.3=$1.00 recorded the day before.

 

WASHINGTON SEEKS MORE CONTRACTS IN JAPAN'S PUBLIC WORKS MARKET by Jon Choy

The Clinton administration continues to press Tokyo to give American and other foreign firms more opportunities to win a bigger share of its mammoth market for architectural, engineering and construction services. As part of its recent efforts to get the economy moving, the government has been pumping record amounts of money into public works. However, foreign companies, especially American ones, have not benefited from this expanding business. As a matter of fact, U.S. architectural, engineering and construction companies, although among the world leaders in their fields, won just $50 million worth of Japanese government contracts in 1998 and 1999, a minuscule 0.02 percent market share, according to the Department of Commerce. Its negotiators have turned up the heat on Tokyo, threatening trade sanctions by March if bilateral talks do not yield sufficient progress.

 

OBUCHI WORKS TO BOLSTER TIES WITH SOUTHEAST ASIA by Marc Castellano

Prime Minister Keizo Obuchi used a January 10-15 trip to Cambodia, Laos and Thailand to discuss ways to increase bilateral cooperation. Most significantly, he promised to be Asia's voice at this year's summit of the leaders of the Group of Seven industrial nations plus Russia, which will be held on Okinawa in July. The premier also announced new financial assistance programs and other initiatives aimed at spurring development in the three countries. Mr. Obuchi's trip marked the first official visit by a Japanese prime minister to Cambodia in 43 years and to Laos in 33 years.

 

DPJ GEARS UP TO CHALLENGE RULING COALITION IN REGULAR DIET SESSION by Barbara Wanner

Eyeing the upcoming lower house elections, the Democratic Party of Japan, the largest opposition group, is champing at the bit to make the tripartite government of Prime Minister Keizo Obuchi look bad during the regular Diet session that began January 20. While DPJ officials harbor no illusions about their party's ability to win control of the House of Representatives, they clearly intend to expand their power base. The Democrats regard the current parliamentary session, during which lawmakers must enact the FY 2000 budget, among other important matters, as a golden opportunity to play on citizens' apparent concerns about the Obuchi administration's fitness for leadership. The DPJ no doubt hopes to score points during the weekly 40 minutes of Diet debate between the prime minister and members of the nonruling parties, a protocol decided January 17 by senior members of the ruling and opposition forces.

 

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