Macro and Micro Economics: Japan in the Great Depression - Example

Number: Macro & Micro economics: Japan in the great depression Depression in an economic view is just an extreme form of recession in which the economy faces in a given period. It is characterized by severe economic turn down to extent citizens of a given country suffers a lot and are in need of aid or help. It is characterized by factors such as increased unemployment level, low production rate, financial depreciation and also bank failures. In this context, Great Depression refers to the server’s worldwide economic depression that lasted for ten years preceding World War II. Its period varied across nations but in most countries it started in the late 1929, lasted through 1930s and to mid-1940s. It was the longest, profound and the most extensive type of depression ever experienced in the 20th century. The degree and how far economic crisis can go is compared to the Great Depression of the 21st century. It started in the United States after a decline that commenced in the September 1929 spread worldwide to other countries with stock market crash of October 1929 known as The Black Tuesday. The period was not fully felt in Japan because of different reasons (Smith 203). Japans economy was doing well after the World War I unlike the Britains, because of this factor Japan took that advantage of current Britains economic decline in the 1920s and took over the market that had been dominated by the Britain in the earlier years .It is because of an intellectual ruling in Japan as compared to other states. For instance, the Japanese textile exports were more preferred in the export market than the British ones and due to this Japan started displacing Britain in textile export. It led to the rise of powerful parties that had emperor appointing prime minister. After the world war, it changed and the Diet, which was their parliament, was given the honor to appoint prime minister. The government became more careful and addressed their concern and the voters concern (Smith 201). It removed abolition of labor union restraints, implemented health insurance plan and allowed all men over the age of 25 years the right to vote. Japan being Am Island in the nation that depended more on the economic benefits from exported and foreign trade could not manage for a decade that the period lasted. Japanese silk was no longer imported by other countries and this, on the other hand, led to decreases in exports by 52% between 1929 and 1931(Olson 98). The graph below represents the rate at which Black Tuesday occurred and the years it lasted. The graph below shows the rate of unemployment during the depression period when most companies closed because they were unable to pay their employees. Real GDP (Gross Domestic Product) is the total value of goods and services produced in a given country over a given period of time particularly in a year’s time. The real GDP of Japan started to decline as the import and export could not balance to sustain the economy (Olson 109). The decline in real GDP was brought about by the crisis which was facing Japan at that particular time and also the world at large. During this massacre, citizens were not productive because of increased tensions which had been caused by the world war two and in this period the countries were just establishing their economies a fresh. It made a close to 32 million in the whole world being jobless. Although Japan faced this, it was in a good place if ranked worldly because many western industrialized countries today at those times experienced a lot of difficulties with their economies which led to poor national production value. It is translated to Japan Real GDP in Japan millions of 1990 international Geary-Khamis dollars Year * GDP *Growth Rate 1928 *124 246 *3.22 1929 *128 116 *3.11% 1930 *118 801 * -7.27% 1931 *119 804 *0.84% 1932 *129 835 * 8.37% 1933 * 142 589 *9.82% 1934 *142 876 * 0.20% 1935 *146 817 *2.75% 1936 *157 493 *7.27% 1937 * 165 017 *4.77% 1938 *176 051 *6.68% 1939 *203 781 *15.75% 1940 * 209 728 * 2.91% 1941 *212 594 * 1.36% Japan’s GDP loss was -7.27% in 1930. Economic growth based on real GDP YEAR REAL GDP 1914-1919 6.2 1920-1929 1.8 1930-1931 0.7 1932-1936 6.1 1937-1940 5 (Source: Ohkawa, Kazushi (1974) Economic statistics of Japan) Implicit price deflator also known as the GDP deflator is a measure of all new, locally produced, products and services. The Gross Domestic Product is the total value of all goods and services produced within the economy of a country in a specified period. It also measures inflation and deflation with respect to a given period. It is normally equivalent to 100. In order to find out the GDP the below formulae is used GDP deflator =Nominal GDP/Real GDP x 100. The GDP and GDP deflator in Japan is calculated by Cabinet office of Japan headed by the prime minister and three other Secretaries in the Cabinets office (Smith 198). Graph showing the GDP of Japan between1938 to 1944. Nominal exchange rate against the dollar is also known as Agio, Forex rate, Fix rate and Foreign exchange. It measures the rate at which how much of a currency can be traded for in terms of a unit currency of the other. It also refers to the value at which one countrys currency is in terms of another. To make data have more meaning then, comparison is given with reference to a currencys value. For example one US dollar being traded to mean forty Japanese yen during the time of the great depression. To date one US dollar is equivalent to ninety-one Japanese yen (Mikitani 89). Real exchange rate against the dollar refers to nominal exchange rates multiplied by the price indices of the two countries. It results in the market price level of services and goods are given by indices of inflation. For example, when the price level in US is higher than the price level in Japan, then the real exchange rate of Japanese yen versus the dollar will be greater than the nominal exchange rate (Kazushi 1989) Japans principal exports and their destinations were majorly influenced by the trading partners like the Germans. Japan depended mostly on export that they were getting from agricultural products. They had plantation and mining that supplied them with the raw materials that they sold to the others. Most countries that had most of their economies dependent on exports felt the slump of the greater depression to the extent they could not manage (Mikitani 23). Those countries like Japan that had their economy squarely depending on agriculture did not feel the pain so much. It was spread to other countries like India who had their economy depending on cotton growing. It led to them owning mineral ores and smelting industries that thrived during this time. When the period came to an end in a decade’s time mines and plantations were hit. Since the peasant type of food production remained to be the best supplying source, they depended on it. Therefore, these countries were relatively less affected. Because Japan is largely based on agriculture, this promoted export of agricultural products. This factor has led to accelerated exchange rate. It happened between USA and Japan and also it led to industrialization through the provision of raw materials (David 201). Japan imported small point of materials from other countries. It was so because most of their needs were being provided by the domestic economy they had. The raw materials for making these needed materials were being blended by what was imported. It was not a fan of import because it was maximizing on production during this critical point of need. Money supply refers to the total amount of money as seats available in a specific period. The bank of Japan that monitors the money circulation defines M1 as refers to cash deposit and cash currency in circulation. M2 + CDs are equals to M1+ quassi partner +CDS. M3 and CDs is the overall checker on what is supposed to be circulated in the money sector (Mikitani 109). The graph below shows the average money supply to maintain the flow in the economic system Japanese spend a lot on their military. This is what they say is good and better for a healthier country. It translates to stronger defenses meaning no external attack my come across. The value of the money being channeled keep on increasing and changing. Japan has been ranked fourth and fifth according to the American fact book - CIA. It spends more than 18million Japanese yen (Olson 24) .People also understands there are bodies that give military knowledge thus helping them to be well trained. According to the military department expenditure has increase to more run four point five trillion. YEAR TOTAL DEFENCE EXPENTITURE Yen 1932 1310 1933 1199 1934 1771 1935 1257 1938 1396 (Source: Statistics Bureau Japan) The above table can be interpreted in a line graph to reflect the path which this expenditure followed. In 2013 the Japanese deficit exceeded one quadrillion more than twice the domestic growth. In order to address the growing gap and national revenue the prime-minister Nodah came with amendments that led that made revenue which saw the increase of revenue by 10 percent. Abemonics LD to appreciation of Japanese market thereby impacting on the Japanese bank bond (David 14). Japan had based its economic activities on export market after overtaking the market from Britain. This activity polluted the minds of individuals who were managing the activity because most of the goods were export and the country had invested inadequately as compared to exports. In this period the Japan’s government purchases were little compared to exports. Their aim was to maximize their earnings from exports. The Republic of Japan replaced Britain in the textile exports and this made the textile randomly grow. Due to increased income from trade through country’s industrialization expanded (Mikitani 39). This expansion led to depletion of raw materials and the industries suffered a lot because they could not access any nearby raw materials. This led to accelerated import of raw materials which cost the government a lot. This factor led to reduced earnings from the industrial sector and at the same time the country lost the export market (Mikitani 20). The graph shows how industrialization sector happened. The Japans Parliament, the Diet is a bicameral house. It is made up of two houses that is, house of councilors and House of Representatives with the speakers of each house. The members of parliament made reforms that affected the economy as a whole. Many reforms made impacted positively to the economy but others did not. Also, the parliament was slow in making reforms that could have ended the challenges that the country was facing. During the great depression period, the government of Japan faced a lot of challenges because this period demanded more of its actions. The then minister of finance Takahashi Korekivo up with the policies that were later labeled or named Keynesian economic policies (Mikitani 89). One of his first policies was based on deficit spending, and the second was based on the devaluation of the currency. The minister used the Bank of Japan to implement his policies. The sterilization of deficit spending resulted to inflationary pressure. The deficit spending was directed to the purchasing of munitions (Mikitani 32). The policy on devaluation policy, on the other hand, impacted immediately on the economy. Due to this the Japanese textile export displaced the Britain export power. This worldly recognized and appreciated policies led to withdraw of the Republic of Japan from the world of depression that had challenged the government. After a while, the minister decided to change the policy on deficit spending, and this resulted to a great opposition from the army and nationalists too leading to his murder. This action also led to murder of many government officials and in the end the army took over, and it reinstalled the changed policy on deficit spending and this led to persistent inflation in the economy. Fiscal expansion had a positive impact to the people of Japan in the sense that the government it financed it through the bond issues. It was termed as spending policy. This factor led to monetization of fiscal deficit in the Japanese history. Monetary expansion in the country led to decrease in interest rate (Wiegand 34). In February 26 Incident, there were major assassinations that led to death of many civilian bureaucrats in the Japanese government. After this action by the army, the army dominated companies. The deficit spending had a transformative effect on Japan. Japans industrial production doubled during the 1930s. Further, in 1929 the list of the largest firms in Japan was dominated by light industries, especially textile. It led to citizens being ruled by soldiers (Wiegand 204). International macroeconomics is a branch of financial economics dealing with monetary and macroeconomics relationship between two countries. It deals with financial matters, the GDPs, nominal and exchange rates. It seemed to compare the financial breakdown. Japanese economy had dominated the Asian continent in 1930s because of its random development. Japan was producing a lot of products that were appreciated in the entire Asian market and, as a result, other countries learned from the footsteps of the Republic of Japan. Japanese economy was based to the pillars of the leadership of the government. The Asian market was very important to Japan because it provided market for the goods that were produced in the Japanese economy. As we are aware of Japan was highly industrialized, and this meant that it produced a large quantity of goods and serves and they were quality too so they fetched very high prices in the market (David 19). Asian market promoted trade between Asian countries in which Japan was one of them. It led to improvement of the economies of these countries due to exchange of skills between each other. It also promoted economic growth because of the currency exchange between the countries. Due to rise in industrialization the resources in Japan were depleted, and there were less raw materials with which the industries could use in its production and manufacturing factories. Because of this factor industries in Japan were able to access more raw materials from other Asian countries which interacted in the market (Wiegand 204). Persisted increase prices of goods and services in Japan have been experienced this because it came as a result of the extended recession in the great depression. It is because during this period there was fewer industries and production was very low. This factor influences the overall economic performance of the country at large. As we know, inflation is caused by cost push and demand push. After the innovative and acceleration of the establishment of industries, there was increased production in the market. This led to a reduction in interest rate, and it enabled people to afford goods and services in the economy. Due to rise in industrialization there was depletion in raw materials that led to a reduction in production hence decrease products and services. Due to this the prices increased persistently hence increase in demand as prices increases (Wiegand 63). The Japanese military action costs the lives of many and worthy individuals in the society. The army was after their wishes that desire and not desires for the country as whole. The military opposed the proposal of the minister of finance who was the knowledgeable pertaining economic issues, and he led the state in the Wright path until the economy of Japan was considered to have grown by a miracle. Due to what the military decided the country ended up suffering, and the decision led to decline of Japanese economy after the fight that they had with China. The war was won my Chinese army, and it led to decline of Japanese economy (Olson 98). Due to fast economic growth in Japan there was the development of the industrial sector that was accelerating by availability of skills and resources at the time. Agriculture contributed largely to growth of industries due to its ability to provide raw materials. Industrialization led to increase in foreign exchange because many of the goods were also exported to USA and others were sold in the Asian market, as we know Japan was the dominant State as far as economic growth is concerned. This factor has led to improved living standards in Japan because it provided employment to the citizens of Japan. It has also led to availability of goods and services making them more available to Japanese (Wiegand 109). Japan was out of the great depression very fast because of the policies that were made by its leader more so by the policies that were made by the finance minister. The policies contributed to a random and unbelievable growth of the Japanese economy. These policies were economically made and were well argued upon (David 34). Conclusively it is evident that the leadership of Japan contributed positively to the fast growth of its economy. The knowledge based leadership has helped establish and apply macroeconomic theories. The economic development was brought about by the industrial development and agricultural improvement. Due to developments, citizens have gained a lot of rewards, as a result, their effort that contributed fully to the development. The uniqueness of this fast developed economy is characterized by domestic incubated ideologies (Wiegand 23). Work Cited Smith, Kerry D. A Time of Crisis: Japan, the Great Depression, and Rural Revitalization. Cambridge (Mass.: Harvard University Asia Center, 2001. Print. Olson, James S. Historical Dictionary of the Great Depression, 1929 - 1940. Westport, Conn. [u.a.: Greenwood Press, 2001. Print. Kitanaka, Junko. Depression in Japan: Psychiatric Cures for a Society in Distress. Princeton, N.J: Princeton University Press, 2012. Print. Iwami, Toro. The Great Depression in Japan: Why so Short and Mild? : (abstract). Tokyo: University, 1994. Print. Low, Morris. Building a Modern Japan: Science, Technology, and Medicine in the Meiji Era and Beyond. New York, NY: Palgrave Macmillan, 2005. Internet resource. Mikitani, Ryōichi. Japans Financial Crisis and Its Parallels to U.s. Experience. Washington, DC: Inst. for Internat. Economics, 2000. Print. Burg, David F. The Great Depression. New York: Facts On File, 2005. Internet resource. Wiegand, Steve. Lessons from the Great Depression for Dummies. Hoboken, NJ: Wiley, 2009. Internet resource. Read More