In also advocating for modifications to the Trans-Pacific

In the aftermath
of a series of national natural disasters which have impacted commercial
activity as well as the national psyche, Japan has made notable steps toward
economic healing.

In July 2017, Japan and the European Union reached agreement on a broad Free
Trade agreement, or Economic Partnership Agreement (EPA), taking a step closer
to an economic bloc that would account for nearly a third of all global trade.
Both sides announced that many of the details remain to be negotiated, but the
result is expected to remove tariffs on more than 95% of goods traded between
Japan and the EU member states. Products such as European cheese and Japanese
automobiles will see tariffs reduced to zero over 15 years (cheese) and seven
years (autos). Japan is also advocating for modifications to the Trans-Pacific
Partnership (TPP) that would allow it to enter into effect without the United
States. Japan EPAs will exert pressure on the competitiveness of some American
exporters to Japan absent a modified TPP or comparable successor arrangement.
 Some American exporters may need to revisit and perhaps adjust their
market strategy in order to build market share.

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Key Facts:

National
Capital: TokyoPopulation:
126.7 million (July 2016)Land
Area: 364,485 sq. kmGDP
(official exchange rate): $4.73 trillion (2015 )Real
GDP Growth: 0.5% (2016 est.)GDP
per Capita (Purchasing Power Parity): $38,900 (2015)Household
Consumption Percent of GDP: 58.3% (2016)Unemployment
Rate: 3.36% (2015, IMF)Key
Industries: among world’s largest and most technologically advanced
producers of motor vehicles, electronic equipment, machine tools, steel and
nonferrous metals, ships, chemicals, textiles, and processed foodsExports:
$641.4 billion f.o.b. (2016 est.)Leading
Export Destinations: U.S. 20.2%, China 17.5%, South Korea 7.1%, Hong Kong
5.6%, Thailand 4.5% Value
of Imports (2016): $629.8 billion Major
Import Categories: Petroleum, liquid natural gas, clothing,
semiconductors, coal Leading
Sources of Imports: China 24.8%, U.S. 10.5%, Australia 5.4%, South Korea
4.1%, Trade
Balance +$11.6 billion Services
Balance: – $15.8 billion U.S.
Exports to Japan: $63.3 billion (2016)U.S.
Imports from Japan: $132.2 billion (2016)U.S.
Trade Balance with Japan: -$68.9 billion (2016)

Japan’s Debt is the highest in OECD:

Figure: 02

During the
past two decades, economic growth has been sluggish, reducing Japan’s relative
per capita income from a level matching the top half of OECD
(Organisation for Economic Co-operation and Development) countries
in the early 1990s to 14% below (Figure: 02). The collapse of the asset price
bubble in the early 1990s was followed by an extended period of corporate
restructuring and a banking crisis. Weak growth has contributed to Japan’s
serious fiscal problem by limiting the growth of government revenue. Rising
spending, driven by population ageing and frequent fiscal stimulus packages,
has been financed largely by borrowing, boosting gross government debt to 226%
of GDP in 2014 (Panel B), the highest ever recorded in the OECD. Net debt is also
the highest at 129% of GDP. Upward pressure on the debt ratio continues, with a
primary budget deficit of nearly 7% of GDP in 2014 (Panel C). Persistent
deflation has contributed to the run-up in the debt ratio by reducing nominal
GDP (Panel D), while acting as a headwind to output growth. The 2011 Great East
Japan Earthquake – the worst disaster in Japan’s post-war history – put further
pressure on public finances.

In early 2013, Japan
launched a three-pillar approach, the so-called three arrows of “Abenomics”, to
exit deflation and revitalize the country: a bold monetary policy; flexible fiscal
policy; and a growth strategy. The first arrow was launched in early 2013 with
the introduction of “quantitative and qualitative easing” (QQE). It was
accompanied by the second arrow, which included two large fiscal packages. The
third arrow – the Japan Revitalization Strategy – was announced in June 2013
and revised a year later. The combined effects of fiscal and monetary policy
expansion and structural reform were intended to strengthen business investment
and private consumption, with a view to boost real growth to a 2% annual pace
through 2022 and to achieve a 2% inflation target. The initial results of the
first two arrows were encouraging; nominal GDP increased at a faster pace,
aided by a pick-up in inflation, reflecting a large depreciation of the yen.
Output growth reached 1.6% in 2013, as business and consumer confidence soared
and the stock market rose by 57%. Following a contraction in the wake of the
consumption tax hike, growth is resumed in late 2014. The third arrow of
Abenomics is its most crucial component, without which the unprecedented
monetary expansion and the fiscal effort will not succeed in putting Japan on a
path to faster growth and fiscal sustainability. The ten key reforms in the
Strategy include important measures to promote growth, but they need to be more
ambitious and implemented rapidly. The top priorities are: i) stabilizing the
size of the labor force by boosting the participation of women and older people
and expanding inflows of foreign workers; ii) enhancing Japan’s integration in
the world economy through trade agreements, notably the

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