Japan is an important developed economy, the third largest in the world in nominal

GDP terms, ranking behind the United States and China. In purchasing power parity
terms, Japan ranks fourth. Japan is fifth largest in both exports and imports.
The International Monetary Fund (IMF) ranks Japan as the second most developed
economy, behind only the United States. This is a term used to describe a country
with a highly developed economy and infrastructure. The IMF uses a variety of criteria
in its analysis, including such data as GDP, per capita income, standard of living,
industrialization, and so on. Japan, however, ranks tenth in population, at
approximately 127 billion, or 1.75% of the worlds citizens.
Japan has a long history of political and economic strength. From 1955 to 1973,
Japans GDP growth rate was 9.2%. However, most are aware of Japans recent
decades of economic struggles. Japans so-called Lost Decades began in the 1980s
with the buildup of the property sector and peaking of the stock market. Following a
property crash the country had a series of five recessions (highlighted below) and
recoveries.
In 1990-93, monetary policy tightened and asset bubbles popped. The recovery
that followed did not maintain traction for long.
In 1997, the end of tax cuts and the Asian crisis were the triggers. The recovery
was weak and dependent on simulative measures and zero interest rates.
In 2001, recession resulted when the tech bubble burst.
In 2008-09, recession was caused by the global financial crisis. A 14-year high for
the yen was another factor and the recovery was stunted by tragic events including a
major earthquake, tsunami, and resulting nuclear disaster.
In 2014, recession was spurred largely by natural disasters, increased taxes, and
nuclear power cessation.

During the past two decades, economic growth has been sluggish, reducing Japans
relative per capita income from a level matching the top half of OECD countries in the
early
1990s to 14% below .The collapse of the asset price bubble in the early 1990s was
followed by an extended period of corporate restructuring and a banking crisis. Weak
growth has contributed to Japans serious fiscal problem by limiting the growth of
government revenue. Rising spending, driven by population ageing and frequent fiscal
stimulus packages, has been financed largely by borrowing, boosting gross
government

debt to 226% of GDP in 2014 the highest ever recorded in the OECD. Net debt is
also the highest at 129% of GDP. Upward pressure on the debt ratio continues, with a
primary budget deficit of nearly 7% of GDP in 2014 .Persistent deflation has
contributed to the run-up in the debt ratio by reducing nominal GDP while acting
as a headwind to output growth. The 2011 Great East Japan Earthquake the worst
disaster
in Japan's post-war history put further pressure on public finances.
In early 2013, Japan launched a three-pillar approach, the so-called three arrows of
Abenomics, to exit deflation and revitalise the country: a bold monetary policy;
flexible
fiscal policy; and a growth strategy. The first arrow was launched in early 2013 with
the
introduction of quantitative and qualitative easing (QQE). It was accompanied by
the
second arrow, which included two large fiscal packages. The third arrow the Japan
Revitalisation Strategy was announced in June 2013 and revised a year later. The
combined effects of fiscal and monetary policy expansion and structural reform were
intended to strengthen business investment and private consumption, with a view to
boost
real growth to a 2% annual pace through 2022 and to achieve a 2% inflation target.
The
initial results of the first two arrows were encouraging; nominal GDP increased at a
faster
pace, aided by a pick-up in inflation, reflecting a large depreciation of the yen. Output
growth reached 1.6% in 2013, as business and consumer confidence soared and the
stock
market rose by 57%. Following a contraction in the wake of the consumption tax hike,
growth resumed in late 2014.
The third arrow of Abenomics is its most crucial component, without which the
unprecedented monetary expansion and the fiscal effort will not succeed in putting
Japan
on a path to faster growth and fiscal sustainability. The ten key reforms in the
Strategy

include important measures to promote growth, but they need to be more ambitious
and
implemented rapidly. The top priorities are: i) stabilising the size of the labour force by
boosting the participation of women and older people and expanding inflows of
foreign
workers; ii) enhancing Japans integration in the world economy through trade
agreements,
notably the Trans-Pacific Partnership (TPP) and the Japan-EU Economic Partnership
Agreement; and iii) improving the business climate by upgrading corporate
governance,
enhancing labour flexibility and mobility, promoting venture capital investment and
improving policies for small and medium-sized enterprises (SMEs).
Japans GDP trend direction and forecast

The gross domestic product (GDP) measures of national income and output for a
given country's economy. The gross domestic product (GDP) is equal to the total
expenditures for all final goods and services produced within the country in a stipulated
period of time
The Japanese economy shrank 0.2 percent on quarter in the three months to
September of 2015, the same as a downwardly revised 0.2 percent drop in the previous
period and worse than market expectations of a 0.1 percent contraction. The GDP shrank
for the second straight quarter as a rebound in exports was not able to offset a fall in
capital expenditure, preliminary estimates showed. GDP Growth Rate in Japan averaged

0.49 percent from 1980 until 2015, reaching an all time high of 3.20 percent in the
second quarter of 1990 and a record low of -4 percent in the first quarter of 2009.

Japan's industrialized, free market economy is the third biggest in the world. Japan
has the largest electronics industry and the third largest automobile industry in the
world. Japans economy is well-known by its efficiency and competitiveness in exports
oriented sectors, but productivity is lower in areas such as agriculture, distribution, and
services.

Japans inflation/Deflation trend direction and forecast

Consumer Price Index (CPI) measures the weighted average price level of goods and
services consumers pay. Its weights are determined by the spending pattern of
household in a standard year, currently set at 2010. The Bank of Japan targets its core
measure, CPI excluding fresh food. The US-styled core measure, CPI excluding food and
energy, is also published in the official statistics release. The government currently does
not officially publish trimmed CPI measures. Monthly CPI reports are published toward
the end of the following month. The preliminary CPI report for Tokyo area is published
one month in advance and it is often regarded as a leading indicator for the national CPI.

In October, the Japanese CPI excluding fresh food was down 0.1% year on year,
unchanged from September. However, an overall tone of the CPI report was not
deflationary, in our view. When food and energy are excluded, CPI inflation was up 0.7%
year on year. The official CPI report does not contain the CPI measure preferred
nowadays by the BoJ, namely CPI excluding fresh food and energy. In our calculation, the
measure should show a year on year inflation of 1.2%, unchanged from September.

We agree with the BoJ's assessment that there is a moderate inflationary pressure
building up in the Japanese economy. The decline in the headline CPI index is entirely
due to the energy prices. In October, energy prices fell by 11.8% year on year,
depressing the overall CPI index by 1.11% point. We also agree that the tightening we
see in the labor market should work to raise the inflation rate in Japan, over time.

Consumer prices in Japan rose by 0.3 percent year-on-year in October of 2015, after
showing no growth in the previous month and beating market expectations. It was the
highest figure in four months, as food cost rose further while prices of fuel dropped at a
slower pace. When excluding the effect of energy and fresh food cost, a new indicator
published by the Bank of Japan showed consumer prices rose by 1.2 percent year-onyear in October 2015. Inflation Rate in Japan averaged 3.12 percent from 1958 until
2015, reaching an all time high of 25 percent in February of 1974 and a record low of
-2.52 percent in October of 2009. Inflation Rate in Japan is reported by the Ministry of
Internal Affairs & Communications.

In Japan, the most important categories in the consumer price index are Food (25
percent of total weight) and Housing (21 percent). Transportation and communications
accounts for 14 percent; Culture and recreation for 11.5 percent; Fuel, light and water
charges for 7 percent; Medical care for 4.3 percent; Clothes and footwear for 4 percent.
Furniture and household utensils, Education and Miscellaneous goods and services
account for the remaining.