Economics (AS & A Level) · Feb / March 2021 · Paper 22 · Question 1

Challenges for the Japanese economy. Table 1.1 Japan: Selected Economic Indicators 2014–2019 Source: Cabinet Office of Japan in IMF World Economic Outlook, April 2019 Extract 1: Japanese consumer prices rose by only 1.0% in 2018 Japan is the world’s third-largest economy and continues its long battle to boost weak inflation. The In an attempt to boost inflation, the BOJ has persevered with low interest rates, and has repeatedly said it is not going to stop using this strategy, even as other central banks around the world begin raising interest rates. Source: The Japan Times, 18 January 2019 Content removed due to copyright restrictions. Content removed due to copyright restrictions. 3 Extract 2: Japan’s government ready to use fiscal policy to offset economic risks Japan’s government has signalled its readiness to increase government spending next year if it is necessary to offset risks to the economy that are likely to arise from the trade war between the United States and China. These risks could add to the pressure on Japan’s government to increase its spending ahead of a planned increase in sales tax in October 2019. In a long-term fiscal policy plan, the government said it is ready to use macro-economic policy ‘without hesitation’ if a downturn in foreign economies poses risks to Japan’s economy. Despite this, the Japanese government plans to raise the sales tax to 10% from 8% in October, and this would reduce consumption spending, which makes up roughly 60% of Japan’s aggregate demand, at a time of slower demand from abroad. The previous sales tax rise to 8%, from 5%, in 2014 hit consumption and was blamed for a slump in the Japanese economy. Source: The Daily Times, 16 July 2019

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