Japan is remarkable for its extraordinarily rapid rate of economic
growth in the 20th century, especially in the first several decades after World
War II. This growth was based on unprecedented expansion of industrial
production and the development of an enormous domestic market, as
well as on an aggressive export trade policy. In terms of gross
national product (GNP; or gross national income), a common indicator of a
country’s wealth, Japan is the world’s second largest economic power, ranking
behind only the United States. It has developed a highly
diversified manufacturing and service economy and is one of the world’s largest
producers of motor vehicles, steel, and high-technology manufactured goods
(notably consumer electronics). The service sector has come to
dominate the economy in terms of its overall proportion of the gross
domestic product (GDP) and of employment.
The emphasis on trade stems from Japan’s lack of the natural
resources needed to support its industrial economy, notably fossil fuels and
most minerals. In addition, the limited amount of arable land in the country
forces Japan to import much of its food needs. Generally, however, Japan’s
strong domestic market has reduced the country’s dependence on trade in terms
of the proportion trade contributes to the GDP when compared with that of many
other countries.
Manufacturing
The most notable feature of Japan’s economic
growth since World War II is the rapid development of manufacturing, with
progress in quantitative growth, quality, variety, and efficiency.
Emphasis has shifted from light to heavy industries and to a higher degree of
processing. Thus, some of the older industries, including lumber and wood
processing and the manufacture of textiles and foodstuffs, have declined
considerably in relative importance.
Japan is one of the world’s principal shipbuilders and
automakers and is a major producer of such basic products as crude steel, synthetic rubber,
aluminum, sulfuric acid, plastics, cement, pulp and paper, a
variety of chemicals and petrochemicals, and textiles. It has some of the
world’s largest and most-advanced industrial plants. In the late 20th century
the most spectacular growth was in the production of motor vehicles, iron and
steel, machinery (including robots), and precision equipment (notably cameras).
Subsequently the country became noted for advanced electronic products,
including computers and microelectronics, telecommunications equipment, and
consumer goods.
A principal reason for Japan’s postwar industrial performance
was the high level and rapid growth of capital investment, especially in the
1960s and ’70s. A boom in equipment investment provided the iron-and-steel and
machine-building industries with a rapidly growing home market,
allowed for a spectacular increase in productive capacity and in the scale of operations,
and led to a rapid replacement of old machinery. This in turn resulted in
considerable improvement in productivity throughout the economy and enabled
manufacturing industries to grow, despite an acute shortage of
skilled labour and rising wages. The extensive use of technological innovations and
the implementation of superior production systems gave many sectors of Japanese
manufacturing a formidable advantage over their rivals, and as
a result the country’s exports soared. Another strategy, which was pursued in
part to reduce trade friction with foreign competitors and also to cut costs as
the yen appreciated in value, was to set up overseas
facilities in parts of Asia, North America, and Europe.
This approach was carried out with particular success by manufacturers of
automobiles and advanced electronic products.
The existence of close-knit corporate groups, in what is
called the keiretsu system, has played an
important role in the successful structural adjustments Japanese industry made
to changing economic circumstances. Through extensive crossholding of company
stocks, keiretsu groups collaborated on long-range
strategies aimed at garnering market share without regard to short-term profit
and managed the risks of manufacturing, distribution, and sales. Such actions
were made possible by the gradual relaxation and increasingly flexible
interpretation of the country’s antimonopoly laws enacted after World War II
that had broken up the old zaibatsu conglomerates.
However, the system has weakened over time, as changes in the financial environment made
Japanese industry more willing to enter tie-ups, mergers, and takeovers that
cross traditional keiretsu boundaries.
External Trade
Export
An outstanding feature of Japan’s economic development after World
War II was the rapid advance in overseas sales, even though the share of
exports in the country’s gross national product generally
remained relatively constant. However, from the point of view of individual
industries and as a generator of growth, exports are much more important than
their contribution to the national income suggests. Since the late 1960s, Japan
has had a trade surplus nearly every year, with the size of the surplus often
being the largest in the world.
Reasons
for this spectacular export performance are the wide variety of Japan’s
industrial output, the shift to products with a relatively high value added,
the country’s export competitiveness, and the dominant position of its industry
in a number of fields. However, Japanese exports face increasing challenges.
Most notable is strong competition from Japan’s industrial neighbours China, South
Korea, and Taiwan, as well as from the countries of Southeast Asia.
Other factors include protectionist sentiments among Japan’s chief trading partners,
the valuation of the yen compared with that of other currencies, and
a falloff in exports caused by the increased production of Japanese companies
abroad. In addition, the global recession that began in 2007–08 is
having a significant impact on Japan’s exports, notably of motor vehicles.
A major change in the composition of exports occurred in the
late 20th century. Textiles and food products constituted a
considerably decreased share of total exports, while exports of a wide variety
of machinery and apparatuses (including electronic equipment and components)
and transport equipment grew dramatically, together accounting for the largest
proportion of exports. Other important exports included chemicals, chemical
products, and metals. China and the United States are Japan’s largest
export markets; other countries of East and Southeast Asia and the countries of
the European Union (EU) are also important export destinations.
Import
After World War II, Japan established relatively high tariffs
and instituted restrictive non-tariff barriers for many products in order to
protect domestic markets. Consistently high trade surpluses led to mounting
pressure by Japan’s trading partners—notably the United States—for Japan to
open its domestic market to foreign goods. Imports have grown steadily as
Japan’s trade structure has become more open. Because of Japan’s meagre natural
resources, the bulk of its imports are fuels, raw materials, and foodstuffs.
The major components of imported manufactured goods are machinery and allied
products and chemicals. Japan’s largest suppliers include East and Southeast
Asia (notably China), the Middle East, the United States, and Australia.
Internal trade
Japan
has a long-established and complex system of wholesale distribution and retail
marketing, characterized by numerous intermediary levels in the distribution of
goods and small, often family-run retail outlets. This system, for years
threatened by Japan’s large department stores, also has been challenged by the
growth of supermarket and discount-store chains and by mail-order sales and,
more recently, online commerce. Sales traditionally have been transacted in
cash, but the use of charge accounts and credit cards has become widespread.
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