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by David Sharp, Founding President of the Australian Adam Smith Club (Melbourne) and author of Economic Simplicities

Over the last 25 years the international economic focus of the Australian business and finance media has largely been on China. This is a significant change from the 1970s-1980s when the main international economic focus of the Australian business and finance media was Japan. Nevertheless Japan today, as measured by its GDP, is the world’s third largest economy. It behooves Australians to continue to be aware of its significance.

Japan is an archipelago, comprising 4 major islands, Honshu, Hokkaido, Kyushu and Shikoku, and more than 6000 smaller ones. It lies between latitudes 24 to 46 degrees north, [Cf Brisbane 27 S, Hobart 42 S],. and between longitudes 122 to146 degrees east, stretching from the Sea of Okhotsk in the north, to the East China Sea in the south. It is separated to the east from China, the Koreas and Russia by the Sea of Japan. The population is 128 million, the world’s 10th largest, and the land area is 377,944 sq kms, the 62nd largest, giving it a population density of 337 persons per sq km. [By comparison, the area of the State of Victoria is 227,600 sq kms with a population density of 25]. Tokyo, the capital with 30 million people is the world’s largest megacity.

There is evidence that the archipelago has been inhabited for at least 30,000 years. Early development was influenced by Korea and China, including the introduction of Buddhism. A Japanese state under the rulership of an emperor began to emerge in the C8th A.D., which saw the creation and growth of a distinctive Japanese people and culture.

During the feudal era Japan was dominated by a warrior caste called Samurai who established the Shogun as the effective head of power. He controlled, to a greater or lesser extent, the country’s various clans, which were lead by leaders known as Daimyo… Initial European contact came in the C16th, through Portuguese traders and missionaries. They were followed by the Dutch. The Japanese were quick to adopt, adapt and utilize such aspects of European culture and science that they perceived to be useful, including the use of firearms. At the beginning of the C17th the Tokugawa Shogunate was established. In 1639 the Shogun closed and sealed off the country, apart from an officially-permitted Dutch trading enclave at Nagasaki.

In 1854, Admiral Perry’s American fleet forced the reopening of the country. This precipitated the downfall of the Tokugawa Shoganate and resulted in the Meiji Restoration of 1868, when a dynamic and ambitious group restored the primacy of the Emperor, and began to create a modern and powerful state. The Japanese again proved adept at adopting adapting and utilizing Western methods. Within 40 years Japan fought and won wars against China [1894-5] and Russia [1904-5], and created an empire, including Taiwan, Korea and the southern half of the island of Sakhalin. It later acquired the Marshall and other German island possessions following WW1, and Manchuria in 1931. Japanese military imperialism came to an end with its defeat in WW2.

Following the end of WW2, Japan experienced the so-called Japanese Economic Miracle, similar to and perhaps even greater than the so-called German Economic Miracle, whereby Japan became a major economic power. In 1971, the renowned social scientist Herman Kahn published an influential book called The Emerging Japanese Superstate. Japan experienced an economic boom in the 1970s and 80s. during which time it was said that the value of Tokyo land exceeded that of all of California, and that 100 years was required to pay off a house-purchase mortgage. In the 1990s the boom collapsed.

Climate and Topography
Japan has a largely mountainous topography and experiences a variety of climate; icy winters in Hokkaido in the north, sub-tropical in the Ryukyu Islands in the south.

Along with the likes of Switzerland, Singapore and Hong Kong, Japan is a country with little or no natural resources that has achieved considerable economic success. Arable land is estimated to comprise less than 30% of total land area, with very few mineral resources. It was formerly the world’s second largest economy, but was surpassed by China in 2010. Economic success has been achieved through work, savings, ingenuity and trade. Most economists believe Japan to have been in depression for the last 2 decades. They point to the greatly reduced property prices [estimated up to 80%], and the index of the Tokyo stock market [the world’s second largest] which is below its 1989 level i.e. approximately 40,000 then, and 8000 now. Whilst unemployment is relatively low, it is rising significantly, and many Japanese live in poverty.

Some critics challenge the view of a lost 2 decades. They point out that with far cheaper, “more realistic” prices, life, generally, is far more comfortable. Japan’s status as a safe haven has created a strong yen, which, while making it hard for exporters, has been good for consumers. And, they claim, more precise analysis, shows real GNP actually grew during the period, at least in line with other developed countries. Japan is a major producer and exporter of high quality, sophisticated goods. Major Japanese products include motor vehicles, electronics, electrical appliances, pharmaceuticals, heavy machinery, construction materials, and so forth. Japanese companies, including banks and other service providers, make up16.3% of the Forbes Global 2000 list of major companies. Its main export markets include China [18.9%], USA [16.4%], South Korea [8.1%] Taiwan [6.3%] and H K [5.5%], whilst it imports come from China [22.2%], USA [11%], Australia [6.3%], Saudi Arabia [5.3%], UAE [4.1%], and South Korea [4%]

There exist a number of potential, major problems. They include:

  • An ageing and declining population.
  • An extremely high debt to GDP ratio, more than 200%, the highest in the developed world, threatening the viability of the banking system.
  • An energy crisis, caused by the taking down, following the Fukushima crisis, of the country’s 50 nuclear power plants, the source of more than 25% of its electricity.