Recap the article in one paragraphIn the article Japan Posts Healthy Current Account Surplus, there is a focus on the challenges the country has been going through during the last several years. On the surface, it appears as if the economy is on the verge of experiencing an increase in GDP growth rates. This is the second straight month of Japan experiencing trade surpluses. At the same time, there a number of positive transformations to include: an increase in foreign direct investment capital, improving earnings from overseas investments and rising demand for exports. The combination of these factors is contributing to feelings that the economy is stabilizing. However, this is following a decline in the nation’s GDP rate by 7.1%. This is creating conflicts about growth moving forward. In this situation, the leading and current economic indicators are showing how some kind of bottom is taking place. While the lagging indicators are illustrating how the country went through a major contraction rivaling the recession of 2008 to 2009. As a result, the Bank of Japan is thinking about reducing interest rates to stimulate growth going forward. This is increasing concerns surrounding these actions and the weak yen spurring inflation. The big challenge is to maintain some kind of balance between overheating the economy and preventing it from becoming stagnant. (“Japan Post Healthy Current Account Surplus”)
Current Account Japan is Surplus due to the increase of Export and Net Income from FDI (Foreign Direct Investment) BUT imports are still high.
The current account deficit is starting to deal with the long term trends in the national debt. In this case, the deficit began in 2008, as the economy experienced tremendous challenges and the yen started a long term decline. The news surrounding the current account surplus, exports and net income are the result of Japan experiencing positive developments from the lower yen since this time. This is making Japanese products more affordable overseas. It enhances the net income foreign direct investors are receiving. However, in spite of these developments, the deficit is sitting at an all time high ¥948 billion. This is illustrating how the recent improvement in these numbers is encouraging. Yet, it is also showing, how these trends need to continue. This is to erase the deficit which has built up during the last several years. (“Japan External Trade”) (Iyoda)
Evaluation of plus and negative effect of depreciation to economy. Please use Aggregate Demand / Aggregate Supply Diagram (AD/AS)
Depreciation of the yen has a positive impact on the economy. In these situations, demand will increase and asset prices will rise. This continues to build upon itself with the momentum in demand steadily improving. Over the course of time, this will contribute to an increase in GDP rates, trade, surpluses personal income and consumer spending. However, there is a point when demand will push retail prices higher. This can lead to an increase in inflation. To deal with these issues, the Bank of Japan will raise interest rates and it prints less money. (Fisher)
Once this happens, is when the economy will begin to slow. This will lead to a decrease in demand and rising inventories (i.e. supply). While at the same time, the yen is rising against the major currencies (i.e. the US dollar and euro). The result is that economic activity will decrease with lower levels of GDP, income, trade and consumer spending. This is when prices will steadily decrease until manufacturers are able to reduce their inventories down to the point of equilibrium. These changes, will create an environment where depreciation will stop and prices can begin to slowly rise. This is a reflection of improving demand and firms increasing their activities to keep up with these shifts. As a result, the economy will continue to cycle back and forth between these extremes until equilibrium occurs. This is when there will be a reversal in these trends until economic activity goes to the opposite end of the spectrum. (Fisher)
Supply versus Demand in Contractions
These figures are showing how the crossovers are an inflection point. This is when the forces of supply and demand will reach equilibrium. Once this happens, is the point there will be a positive or negative reversal. This is illustrating how the aggregate levels of supply and demand will continually shift the yen from one extreme to the other. (Fisher)
The rising yen will have an influence on the Japanese economy by making it very sluggish. This is because demand will increase from less supply in the economy. The result is that interest rates will rise in order to fight inflation. However, once the economy begins to cool, is when the Bank of Japan will circulate more money. This is designed to stimulate economic activity by making interest rates lower. The result is that the economy will slowly start to expand with an improvement in the trade deficit, income, FDI returns and corporate profits thanks in part to a weaker yen. (Cargill)
Clearly, the leading and current economic indicators are showing how the Japanese economy is improving. This is taking place with a reduction in the current account deficit and yen. While at the same time, there are improving profit margins for FDI and Japan has realized a trade surplus in the last two quarters. However, the GDP rates are indicating that the economy went through tremendous challenges by experiencing sharp contractions. This is illustrating how major changes are taking place in the long term trends.
- “Japan External Trade.” Trading Economics, 2014. Web. 21 Oct. 2014. http://www.tradingeconomics.com/
- “Japan Post Healthy Current Account Surplus.” Japan Times, 2014. Web. 21 Oct. 2014. http://www.japantimes.co.jp/
- Cargill, Thomas. The Political Economy of Japanese Monetary Policy. Boston: MIT Press, 1997. Print.
- Fisher, Byron. The Supply and Demand Paradox. North Charleston, SC: Book Surge., 2007. Print.
- Iyoda, Mitsuhoiko. Postwar Japanese Economy. New York: Springer, 2010. Print.