Japanese Economy



The Japanese economy is the third largest in the world (recently passed by China) with a GDP of 4.9 trillion USD, according to data of the IMF.

Great, but tell me more about the Big Japanese machine.

How diversified is it?

Is it a big open economy?

How indebted is the government?

Let’s answer all your questions.

Profile of the Japanese Economy

Population: 127 million people, less than half that of the United States.

Interesting fact. Japan’s population is actually declining.

Yep, you heard that right.

According to official statistics, 2015 marked the beginning of the end for the Japanese.

We’ll have to wait and see if they don’t do something about that.

Declining population bodes ill for the Japanese economy, but... if there’s no one alive, does it matter?

Moving to a different topic.

What’s their GDP per capita?

$38,900, which puts Japan on the 44th spot globally (CIA World Factbook).

Main industries: a lot.

The Japanese economy is very well-diversified, with everything from tourism, automobiles, agriculture, and electronics in the mix (among other service industries such as finance).

Of these, Japan is most well-known for its automobile, electronics, and finance sectors. Since Japan’s economy is among the top in the world within those.

The Tokyo Stock Exchange is one of the largest stock exchanges in the world.

While few haven’t heard the name Toyota (seriously!) It is only of quite a few famous Japanese car makers.

All over the world the name was known.

Ok. Enough about industry (we were just perusing).

Tell me about international trade.

Japan’s total trade was around 34.9% of GDP, slightly higher than the United States (low 30s%), but considerably lower than Canada (60%).

Much is made of Japan’s exports.

In terms of Gross Domestic Product, exports add 17.6% to the Japanese economy (according to trading economics).

While imports amount to a similar 17.9% of GDP (same source).

This means Japan, like many others before it, has a trade deficit.

In other words, international trade detracts from GDP (since imports are subtracted).

Note: the last statement is incredibly simplistic, after all, many domestic goods and services require imports of basic or intermediate materials to be finished.

Thus, without the ability to import from abroad, is likely that production wouldn’t be as high (since even goods sold domestically required foreign materials).

Time for everyone’s favorite part: Debt.

Japan's Debt Profile

The Japanese economy’s net government debt to GDP is among the highest in the world (like top 1 or 2, actually).

According to the International Monetary Fund (IMF), Japan’s number is around 132% of GDP.

Wow.

Household debt in Japan is moderate, being only about 62% of GDP in recent years.

But still, wow.

Is Japan bankrupt?

In this Forbes article, we get compelling evidence of why the markets don’t seem to mind the huge debt.

Actually, the article is very solid in that it reflects why FX traders and investors see the Japanese Yen (JPY) as such a solid store of value.

So what’s the gist of it?

Well, it seems the Bank of Japan (BoJ) holds a lot of the government’s debt.

So much that if we obviate those holdings, Japan’s net governmental debt to GDP goes down from 132% to about 90% (huge chunk).

But why would we write those down?

Japan’s Debt Secret is Out: it would be like bringing down the ceiling of your own home.

In theory, the Central Bank wouldn’t bring down its own economy by forcing the repayment of debt by the Government.

And, I mean… the BoJ has the power to print Yens…

So, it’s not like they would ever need to.

Thus, this theory doesn’t seem implausible at all.

I remember a pro FX traders once mentioning how Japan’s debt is very domestically-owned.

Let’s think of it as owing your dad or your mom owing you some cash (yep, I think that would be a good analogy).

The debt is there, but no one’s going to bring the house down for it.

(Especially when you have a cash printer in the basement…)

That’s it for this one.

See you soon,

Emil Christopher,

The Forex Economist

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