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                               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
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                                   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?
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                                   Issues Going Forward
             • How to solve deflation
                                                                  Other
             • Is government deficit/debt a problem?              Panelists?
             • Will the financial sector perform adequately?

             • 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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                                 P e rc e n t




-4 0
          -3 0
                 -2 0
                          -1 0
                                 0
                                      10
                                                20
                                                     30
                                                               40
                                                                    50
                                                                         60
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                                           11
                 GD P


 H o u seh o ld




                                      5
C o n su m p tio n

          P riva te




                         -9
       R esid e n tial
       In vestm en t
          P riva te
                                                          30




        N o n -R esi.
       In vestm en t

 G o vern m en t
                                        8




C o n su m p tio n
                                                                                   J apan's G D P C o m p o ne nts




 -36      P u b lic
                                                                               C hang e 2 0 0 2 to 2 0 0 7 in R e al G D P




       In vestm en t
                                                                          58




           E xp o rts
                                                     26




            Im p o rts
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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

                        110          2005
            Thousands




                        100

                        90                                   High Estimate
                                                             Median Estimate
                        80                                   Low Estimate
                        70

                        60

                        50

                        40
                              2000


                                      2005


                                               2010


                                                      2015


                                                                  2020


                                                                            2025


                                                                                   2030


                                                                                          2035


                                                                                                 2040


                                                                                                        2045


                                                                                                               2050
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                                            F ertility R ate in Ja pa n
           4 .0

           3 .5

           3 .0
                                                                           stea dy sta te = 2 .1
           2 .5

           2 .0

           1 .5

           1 .0

           0 .5

           0 .0
                19 50              1 96 0      19 70        19 80         1 99 0           20 00
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                                        Pop u lation 65+ to Total Pop u lation
                  30

                  25

                  20
           P erc e nt




                  15
                                                                          Jap a n
                  10                                                      United S tates
                                                                          F ra nce
                                                                          United K ingd om
                        5
                                                                          Germ a ny

                        0
                        199 0             199 5     20 00    2005     201 0      201 5       20 20
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                P e rce n t o fT o ta l P o pu la tio n




                0
                          5
                                             10
                                                               15
                                                                    20
                                                                           25
                                                                                   30
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A u s tra lia
                                                                                27.1




 Canada                                                             18.2

      U .S .

                                                        11.5
                                                  8.9
G e rm a n y
  A u s tria                                      8.8
                                                 8.2

 B e lg iu m
                                           7.0


 G re e c e
                                  5.6




  F ra n c e
  Ire la n d
                                 5.6 5.3




 Sweden
                                 4.9




D e n m a rk
                                                                                        F oreig n P op u lation 2008




                                4.5




      U .K .
                            4.3




  N o rw a y
                          3.1




    S p a in
                      2.6




      Ita ly
                     2.0




  F in la n d
                    1.5




   Japan
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                                       Ratio of F oreig n ers to Total P op u lation
                          1 .8
                          1 .6
                          1 .4
                                          Ratio all foreigners
                          1 .2            Excluding Koreans
           P e rc e n t




                          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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