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Changes in the Global Economic Landscape and Issues for Japan's Economy

日本語

March 25, 2024
Yoshihiko Hogen*1
Yojiro Ito*2
Kenji Kanai*3
Naoya Kishi*4

Abstract

The effects of globalization on Japan's economy over the past quarter century can be summarized in the following five features. First, compared with the United States and Europe, Japanese firms have tended to raise productivity by improving the efficiency of their production processes through use of low-cost inputs from abroad. Second, a decline in the competitiveness of Japan's trading sector is due to intensifying competition from abroad and it can be seen as a factor behind the deterioration in Japan's terms of trade and the depreciation of the yen's real effective exchange rate in the long run. Third, there has been a shift in employment from the manufacturing sector to the nonmanufacturing sector, while a wage gap between these two sectors has widened. Fourth, globalization has exerted continuous downward pressure on inflation in Japan for most of the past 25 years. Fifth, in the face of declining price markups, partly due to intensified competition from overseas, Japanese firms have been able to secure their profits by increasing wage markdowns. Given the growing debate about the risk of deglobalization and the impact of heightened geopolitical risks, it is worth deepening our understanding of the impact of these factors on Japan's economy by carefully examining how the five characteristics outlined above will change (or whether they will not).

JEL classification
F10, F20, F30, F40, F60, F61, F62

Keywords
globalization, productivity, FDI, terms of trade, exchange rates, labor market, wages, inflation, price markups, wage markdowns

This paper is a revised and English-translated version of the introductory paper presented at the 10th Joint Conference entitled "Changes in the Global Economic Landscape and Japan's Economy" (in Japanese) held on November 13, 2023, co-hosted by the Center for Advanced Research in Finance at the University of Tokyo and the Research and Statistics Department of the Bank of Japan. At the conference, we received helpful comments from Motoshige Ito, Kenichi Ueda, Eiji Ogawa, Takashi Kano, Ryutaro Kono, Keiichiro Kobayashi, Itsuo Sakuma, and Tsutomu Watanabe. We also thank the staff of the Bank of Japan for their helpful comments and Wakako Kaku and Ayana Shibasaki for research assistance. We also thank the Ministry of Economy, Trade and Industry (METI) for providing data from the Basic Survey of Japanese Business Structure and Activities. Any remaining errors are attributable to the authors. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  1. *1Research and Statistics Department, Bank of Japan
    E-mail : yoshihiko.hougen@boj.or.jp
  2. *2Research and Statistics Department, Bank of Japan
    E-mail : youjirou.itou@boj.or.jp
  3. *3Research and Statistics Department, Bank of Japan
    E-mail : kenji.kanai@boj.or.jp
  4. *4Research and Statistics Department, Bank of Japan
    E-mail : naoya.kishi@boj.or.jp

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