Fundamentals of Global Business

Japan’s Economic Malaise and Future for Growth

Japan was considered an economic powerhouse during the 1960s through the 1980s. During it’s peak the Japanese economy suddenly became stagnated. There are several reasons for this downfall, including falling housing prices, unrest with the Chinese government leading to anti-Japan sentiment, a drop in birth rate leading to an aging population and natural disasters that have hindered Japan’s economic recovery. Despite this, Japan still retains many advantages for companies wanting to do business with them. In addition there are several potential solutions that could aid the Japanese economy to return to the level of health it had at its peak.
Some of the reasons for this downfall during the late 80’s is the Japanese market crashed THIS WAS THE RESULT OF BAD ECONOMIC DECISIONS. causing a lot of housing prices to fall in the wake of the market. There has been some unrest with the China government and their communist ideals, which has allowed a lot of the citizens to turn anti-Japanese. THIS IS VERY RECENT ISSUE. JAPAN'S PROBLEM IS OVER 30 YEARS OLD. This anti-Japanese movement has caused Japanese companies billions of dollars from actions such as vandalism of Japanese vehicles or looters causing vandalism of some of the grocery stores. Nature has also been a big factor by inhibiting the economy to rebound such as earthquakes, flooding, and tsunamis, which has caused extreme difficulty in the recovery aspect for these companies. Due to this instability of the economy, tourism has fallen leading to a dramatic impact on tax revenue.
Japan’s economy reached its high point in 1989 with companies gobbling up U.S. assets, property prices soaring, and the Nikkei index reaching its all- time high. However, when the stock market collapsed and property prices plunged, banks sharply curtailed the easy lending practices that had helped to finance the boom. Consumers, scared by their shrinking net worth, stopped spending pushing the country into a recession. Today, the country is still in the throes of the deflation that has gripped Japan for nearly 30 years. Consumers and businesses expect prices to continue to fall and so continue to delay their purchases despite newly lowered prices pushing the cycle forward. So far, government efforts to stimulate the economy have been ineffective. Today, the mood in Japan is largely pessimistic. -6 A lot can be learned from the fall out of the Japanese economy. With the housing market dropping, the Japanese banks started handing out zero percent interest loans to the housing market. This left the banks with a lot of debt that they were not able to pay back. Governments still need money and having interest rates at a low to moderate rate will still attract consumers and allow the government and the people to save and spend. Banks need to save by not buying so many assets into other countries and not being able to pay off the debt. One of the major issues causing Japan’s economic economic stagnation is that birth rates in Japan fell below replacement levels. This has lead to Japan having one of the oldest populations in the world. Some of the ways that this issue can be addressed is offering families tax breaks or education incentivizes for their children. The education incentivizes would help keep the population growing and give parents incentives to having more than one kid bringing up the population replacement levels. This could also help with immigration and help bring companies in to Japan knowing that their child could be guaranteed a good education. there are similarities between the situation in Japan that led to its economic collapse and continued malaise to the situation that led to the 2008-2009 recession in the United States. Some may wonder if a lack of sufficient regulation led to the easy lending practices that financed Japan’s boom years and whether more control could have prevented the situation. Some may also express concern over the government’s attempt to spend its way out of its economic slump. With Japan’s debt now at 200 percent of its GDP the country has few options left to get back on track. -6

Natural disasters put a lot of burden from companies that have been completely destroyed and leaving some businesses to seek other land or closing down all together because they were not able to recoup from the losses. In order to prevent this from happening, Japan should let companies be able to defer payments or have good incentive programs provided by the government to help companies get back to providing products for their consumers. Without any incentives a lot of companies could have a lot of mistrust in the Japanese government or not allow foreign companies to come at the aid in case of causes beyond their own control. Despite very low interest rates and large investments in public infrastructure Japan’s economy has continued to stagnate. Much of the population and especially younger people have little expectation that things will change for the better. The country needs to take a new approach to growing the economy. Many focus on innovation and recommend that the government make it a national priority by supporting entrepreneurs and think tanks. Those who take this perspective will probably point out the connection between innovation and economic growth. Other might suggest that the country open its doors to immigrants. Doing so would expand the market and help support Japan’s aging population. -3

Another important component of the health of the Japanese economy is the housing market. The housing market has to be at an affordable level so the youth have something to work hard towards and able to maintain a family without the burden of knowing that you have to go into extreme debt to maintain a household. Some of the positive implications of Japan’s economic stagnation are that they still hold one of the best education systems and have a lot of economic freedom. The people in Japan are very loyal to their companies and the employee turn over rate is down. This bond that is shared with the employee and employer has held strong, allowing companies to produce better products. Japan has some of the biggest brand name recognitions such as Toyota, Honda, and Mitsubishi. With a country having so many well-known brands it could bring in a sense of loyalty and help bring their company to other nations to build a better product. Japan has a good infrastructure making it attractive for businesses to build and operate. However, some of the risk of doing business in this nation is there is little trust with the people and the government. People are spending less and saving more to prevent any debt that might occur. Additionally, the government has not proven in years past on how to handle an economic downturn resulting from poor choices made by the government. When comparing Japan to India, both places that make it attractive to do business there or to create a new business. However these places have advantages and disadvantages depending on what you are seeking. Japan’s economic freedom allows for more of a market type of economy while India holds more of a mixed economy. According to India’s Economic Transformation, India’s private firms are 30 to 40 percent more productive than their state-owned enterprises. With India having a private and state owned economy, it can make it difficult for businesses to operate due to some of the laws required. This includes laws making it difficult to grow your company past 100 employees, because the laws prevent you from firing employees with more then 100 people./
Even though India is up and coming and trying to change how the economy is ran run if I were a business owner I would still like my business in Japan. I cannot ignore the fact that Japan holds one of the highest free market economies and have one of the highest education standards. Their infrastructures make it a lot easier to conduct a business. Japan has a better gross national income (GNI), which allows more spending with the consumers. Japan will still be considered an economic powerhouse despite some of its stagnation. People can learn from their abilities at overcoming adversity and how people adapt to the mistrust of their own government. /
ASSESSMENT GRADE: 85