South-Western College Publishing - Economics  
Japanese Economy Remains Strong
Subject Japanese Economy
Topic International Trade
Key Words

Consumption, Imports and Exports

News Story

A government report issued in May shows Japanese consumer spending for April to be at the fastest pace in two decades. The report also indicated that the Japanese economy added jobs and that manufacturing output increased solidly. This data fueled optimism by economy watchers that Japan's two-year-old recovery was finally on solid ground.

"The economy is recovering," said Japanese Prime Minister Junichiro Koizumi. Private economist echoed the same message. "Everything is looking up," said Ryo Hino, and economist at J.P. Morgan Securities Asia. "The economy may not have lost any momentum at all from the first quarter."

The unemployment rate in Japan remained at a three-year low of only 4.7 percent. The economy added 190,000 jobs in March and 240,000 new jobs in April, while increasing industrial production by 3.3 percent in April over the previous month's figures. Much of the increased industrial production came in the electrical machinery and transportation equipment sectors, most of which is exported to other nations.

Exports remain the main engine of the Japanese economy and the current trade surplus continues to grow, hitting $9.7 billion in April. Most of the growth in the surplus comes from increased exports to Asian markets. In addition to the strong export sector, the Japanese economy is also benefiting from a surge in consumer spending. As jobs increase, new optimism grows that the fast pace of consumer spending will continue and lift the economy even further out of the recession. The Japanese people are spending more on travel, recreation, transportation and education.

Economists are still looking for evidence that incomes will continue to rise and make it possible for the increase in consumer spending to follow suit. Bonuses, given twice yearly, make up a significant portion of earnings for many Japanese workers, so analysts are watching to see just how large this next round of bonuses will be. With consumer spending making up about half of the Japanese economy, generous bonuses by most companies could have a strong uplifting impact on the recovery

(Updated July, 2004)


Consumption spending in Japan makes up half of all spending. What is that statistic for the U.S.?

2. What is meant by the term trade surplus?
3. Use a consumption function to discuss the relationship between consumption spending and income?
Source Todd Zaun, "Rising Spending in Japan Fuels Economic Optimism", New York Times Online, May 29, 2004.

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