= The Japanese Economy =

'''The Japanese Economy''' (ISBN: 9780262534147) was written by Takatoshi Ito, published by The MIT Press in 1992. A second edition was published in 1996.

The Tokugawa Economy was characterized by...
 * sakoku
 * shinoo-kooshoo (''lit.'') (''caste system'')
   * peasants produce rice; 37% of harvest paid as taxes
     * 10%-30% of land is cultivated by tenants; tenants pay 20%-28% of harvest to daimyoo (''lit.'')
   * rice market emerged with 3/4 provided by daimyoo (''lit.'')
     * rice futures market in Osaka by 1730
 * sankin-kootai (''lit.'') (''court attendance'')
 * gold, silver, and copper coins with daily exchange rates
   * paper bills in use by private merchants were set to silver standard
 * port of Dejima opened to Dutch and Chinese after currency began flowing out of country (to correct balance of payments)

Opening the country led to rapid economic changes.
 * gold, silver coins were exchanged 1:1 by weight
   * domestic exchange rate for gold and silver was 1:5, while international rate was 1:15; government forced to adjust domestic rate after 7 years
 * 500% inflation from 1859 to 1868

Meiji era characterized by...
 * industrialization and military seizure
   * government seized foreign industry in reaction to tariffs, sanctions (esp. U.S.)
   * government built infrastructure and used industry subsidization policies
 * exported silk, tea; gradually moved to manufacturing economy
 * banking was centralized into a national bank
 * shifted between gold and silver standards for expansive monetary policy
   * silver standard preferred by Pacific trade (esp. Mexico and Argentina)
   * gold standard preferred by European industrial powers
   * Finance Minister Korekiyo Takahashi left gold standard for expansive monetary policy in reaction to Great Depression
 * Great Depression largely did not affect the economy (see above)
 * Indonesian oil was a major goal for involvement in World War 2

Post-war Japan saw rapid economic growth. Some factors for this:
 * ratio of exports to GNP remained constant
 * fixed exchange rate (as mandated by Dodge Line) halted inflation and kept Japanese exports cheap
 * Economic Planning Agency (EPA, organized under MITI) published 5-year plans that thoroughly communicated targets and changes to monetary/fiscal policy
 * EPA monitored recession with diffusion indices rather than aggregated economic data, enabling them to more quickly react
   * typical Keynesian business cycle management theory
   * raise interest rates to cool down the economy until balance of payments was corrected (i.e. imports fell back to the target proportion)
 * MITI boosted industrial economy (esp. coal, steel, shipbuilding)
   * plenty of examples exist for industries that defied MITI yet prospered (esp. automobiles)
 * culture of lower salary with the expectation of a high bonus means that firms can react to a slowing business cycle by reducing the bonus

In the 1970s, the economic state worsened. Some factors for this:
 * oil shocks hit aggregate supply and...
   * caused uncontrollable inflation, leading to the abandonment of the fixed exchange rate (and thereby also of Keynesian policy)
   * diminished returns on capital investment, slowing private investment
 * government debt accumulated, crowding out private investment
 * monetary market was liberalized, allowing private investment out of Japan
 * firms attracted investment through keiretsu
   * publicly traded corporations with supermajority held by a parent holding company, effectively keeping full control
   * also keeps most shares off-market, stabilizing stock price
 * MITI's full employment schemes led to many distribution systems featuring redundant middlemen

Viewing this era through a [[Economics/CobbDouglasProductionFunction|supply-side production function]]:
 * rapid growth in all input factors but the economy as a whole saw most return from capital
   * in other words, Japan's economic growth was susceptible to capital shocks...
 * "more than half of Japan's growth is attributed to 'technological progress and residuals'"

Viewing this era through a demand-side production function:
 * real investment grew consistently
 * the balanced budget (as mandated by the Dodge Line) protected private investment
 * Korean War drove aggregate demand



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CategoryRicottone