Question

In the year 2012, Shinzo Abe became prime minister of Japan, promising bold policies to improve Japan's economy. What was the focus of his policies and how did they affect Japan's trade position?

Answer 1

The prime minister opted for the different policies that positively affected the economy of Japan. The first policy was to increase the government spending that boosted the aggregate demand with multiplier effect and encouraged the consumption in the economy. To cater it, supply also increased and investment spending took place. The second policy was related to the easing of the money supply and lower interest rate to further encourage the consumption. It brought the inflationary pressure an value of Yen came down. It encouraged the export as weakening Yen helped exporters in the international market. The third policy was to bring the regulatory reform to restructure the economic institution. It also improved the economy in a limited extents.

So, the economy of Japan and trade position affected in following ways:

1. Export level increased by the Trade taking place

2. Inflationary pressure in the economy of Japan encouraged spending and created domestic demand

3. Deflationary impact already present in the economy, got slowly vanished with the policy initiatives taken up by the prime minister

So, trade position improved with these policies.