Is Japan's Economic Strength Fortuitous?

Abstract

Of all the advanced countries, Japan is the most vulnerable to the impact of oil crises. This fact is clear from OECD data (1978) showing that 73.5% of Japan's total energy consumption is accounted for by oil, 99.8% of which is imported, with the Middle East supplying 78.5%. At the time of the first oil shock, Japan (1) was hit by a severe inflation, due partly to the excess liquidity that preceded it, (2) watched its trade balance slip into heavy deficits, and (3) underwent a drastic decline in economic growth, due to the deflation policy and the income transfer to the oil-producing countries, thus recording zero growth in 1974 — the lowest since the war. Furthermore, under the second oil shock, the trade balance again suffered, with a deficit of $13.9 billion on the current account and a deficit of $19.0 billion on the basic balance in 1979.