2024 YIJC H1 Prelim CSQ2 Answers

Question 2: Japan’s economic challenges and the road ahead Table 2: Economic indicators for Japan 2018 2019 2020 2021 2022 Real GDP Growth (annual %) 0.6 -0.4 -4.1 2.6 1.0 Consumer Prices (annual %) 1.0 0.5 0.0 -0.2 2.5 Total Unemployment Rate (% of total labour force) 2.5 2.4 2.8 2.6 2.6 Final Private Consumption Expenditure (current US$ in Trillions) 3.75 3.81 3.79 3.77 3.28 Source: data.worldbank.org, 18 June 2024 Table 3: Economic indicators for USA 2018 2019 2020 2021 2022 Real GDP Growth (annual %) 3.0 2.5 -2.2 5.8 1.9 Consumer Prices (annual %) 2.4 1.8 1.2 4.7 8 Total Unemployment Rate (% of total labour force) 3.9 3.7 8.1 5.3 3.6 Final Private Consumption Expenditure (current US$ in Trillions) 16.8 17.4 17.4 19.4 21.1 Source: data.worldbank.org, 18 June 2024 Extract 4: Performance of the Japanese economy in 2022 Japan's moderate growth, lower inflation, and structural challenges positioned it uniquely among the G7. While the United States experienced higher growth rates, driven by strong consumer demand and substantial fiscal stimulus, Japan’s growth was modest. In 2022, Japan's economic outlook was influenced by a combination of factors such as a gradual recovery from the COVID -19 pandemic and persistent structural challenges. Tokyo lifted restrictions on economic activity more gradually. This delay ed the post - pandemic increase in demand that many other countries have seen . Domestic demand in Japan is weak and this is partly a result of low wages.

Source: weforum.org 6 October 2022 Extract 5: Why Japan Stands Virtually Alone in Keeping Interest Rates Ultralow As the Federal Reserve has repeatedly pushed up American interest rates to tame rampant inflation, virtually every major central bank in the world has scrambled to keep up the pace. In the United States — where the economic recovery has been rapid and wages are rising apace — the Fed is seeking to squash inflation by throttling demand. However, the Bank of Japan has remained steadfastly committed to its ultralow interest rates, arguing that making money more expensive now would only suppress already weak demand and set back a fragile economic recovery from the pandemic. The Bank of Japan’s governor, Haruhiko Kuroda, made clear in comments to Parliament that the bank would not change course anytime soon stating that “under the current economic conditions, it’s appropriate to continue monetary easing. Weak consumer demand has made officials at Japan’s central bank wary of raising interest rates. A rate increase could also make it more difficult for Japan to service its own gargantuan debt. The debt concerns have become even more salient as the government has provided enormous fiscal support to businesses and households to counteract the economic damage from recent world events. “Fiscal policy and monetary policy are joined at the hip, and that’s what’s making it so difficult for the Bank of Japan to make a move,”