Chapter 9: The Rise of China and the Sustained Recovery of Japan
* Shin-ichi Fukuda INTRODUCTION 9.1 After the crash of the stock market in the early 1990s, the Japanese economy experienced a prolonged stagnation. The problems became especially serious in the late 1990s when several major financial institutions became insolvent. Japan’s economy recovered from the crisis in the first half of the 2000s and recorded sustained growth until October 2007. Tremendous structural changes during and after the financial crisis were one of the main driving forces for the recovery. However, dramatic increases in exports were another factor. In particular, increases in Japanese exports to China were substantial in the 2000s and supported the recovery of the Japanese economy on the demand side. An exogenous increase of exports can be a big push that raises aggregate output directly and indirectly.1 Figure 9.1 shows Japan’s exports since 1993. The amount of Japan’s monthly total exports, which had been stable at around 4 trillion yen until the end of 2001, started to show dramatic increases after 2002. These increases were accompanied by an equally dramatic rise in exports to China.2 The amount of Japan’s monthly exports to China, which was only 250 billion yen in the early 2000s, exceeded 1 trillion yen in 2007. China is about to surpass the United States as Japan’s top export destination. The starting point of these dramatic increases in exports nearly coincides with that of the sustained recovery of the Japanese economy from prolonged recessions. Figure 9.2 shows business conditions in Japan based on the Coincident Composite Index. Japan’s...
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