...RECESSION DANIEL J.C. BAKER Senior Freshman Japan's dream deflates Interest rates and Keiretsu Dan Baker blames you Introduction This essay examines the performance of the Japanese economy over the period 1985 to 2002 with reference to key economic variables, such as GDP growth, price stability performance, employment, and the public debt to GDP ratio, etc. We focus on the path the economy has taken since the bursting of the “bubble economy” early in 1990, and in particular on the phenomenon of deflation, which appeared as a persistent problem towards the end of the 1990s. This paper will investigate the underlying causes of recession and deflation in Japan, and examine the main problems associated with the latter. Finally, a number of policy solutions will be suggested to combat the deflationary pressures in Japan, and more generally, to help stimulate economic growth. What’s wrong with Japan? Before the bubble burst - Japan as Number One During the 1980s it was a popularly held belief that Japan was rapidly and inexorably catching up on America as the world’s number one economy. From a state of near-complete devastation at the end of World War II, Japan had transformed itself into a global economic powerhouse second only to America in terms of productive output, and unequalled in terms of growth1. Not surprisingly, Japan was considered by many to be the model economy, which “year after year 1 During the 1960s, Japan’s GDP growth amounted to over 10% per annum as...
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...Japan’s Economic Malaise Three simple models for why Japan’s economy will never grow again Michael Smitka Professor of Economics Washington and Lee University Lexington, VA 24450-0303 MSmitka@wlu.edu Version 2 May 23, 2003 ---------------The first version was entitled Three Simple Models for Undergraduate Economists and was prepared for the ASIANetwork Conference, Furman University, April 11-13, 2003. This paper differs primarily in the introduction and summary, and in the addition of more figures. The core analysis and most of the calculatioins remain the same. Smitka / The End of Growth v2 May 23, 2003 Page 1 I. Introduction I argue below that Japan’s economy will not grow again, and that (with hindsight) this should not be surprising. First, Japan has matured, to the point where its labor force is in decline. Such an economy is unlikely to grow in absolute terms. Second, that maturation occurred in a short span of time, resulting in large structural shifts in the economy. These strained the Japanese financial system past the breaking point, and have stymied efforts at macroeconomic stimulus. I believe, however, that the magnitude of these shifts would have overwhelmed any financial structure. I do not deny that Japan’s financial system exhibited large vulnerabilities, and its macroeconomic policy systematic failures. Again, I believe that these are beside the point. Third, the current structure of Japan’s economy is not sustainable; financial liabilities (bank...
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...CHART 4 – PER CAPITA GDP OF JAPAN - TREND 18 F. CHART 5 – INFLATION RATE OF JAPAN 19 G. CHART 6 – DISCOUNT AND LOAN RATES FROM BANK OF JAPAN 20 H. CHART 7 – UNEMPLOYMENT RATE – JAPAN 21 I. CHART 8 – NIKKEI 225 INDEX 21 IX. REFERENCES 22 I. Executive Summary Japan experienced a period of exceptional economic growth becoming an economic powerhouse by the 1980s. However, Japan was not able to carry this economic prowess forward into the 21st century. The Japanese economy lost an entire decade in the 1990s due to economic stagnation -- one that was characterized by deflation, three recessions and a slowdown in economic growth. A stock market crash followed along with more than a three-fourths decline in real-estate prices which plagued Japan’s economy causing huge destruction in wealth, leaving both corporations and households with large amounts of debt. This period famously came to be known as the "lost decade". The Japanese government watched as GDP growth slowed down and inflation fell at a rapid pace causing them to enact several fiscal stimulus packages in an attempt to revive the economy. At the same time, the Bank of Japan was continually lowering interest rates until it finally brought them down to zero. In spite of several monetary and fiscal policy responses the first signs of a recovery did not appear until 1999-2000. This paper critically evaluates the possible causes behind Japan’s economic slowdown of the 1990s and examines the measures and effects...
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...However, this paper covers only a few that interested me the most. It covers factors that contribute to deflation such as high corporate rate, strong yen, and trade surplus. Why does Japan face deflation? According to the World Factbook, Japan has the third largest economy in the world with a 2011 GDP of $5.85 trillion US dollars. It is one of the largest exporters of goods in the world, which contributes to a consistent trade surplus for the country. China, one of the primary Japan’s trading partners, has gained the largest share of Japan’s import’s market due to significantly lower price of goods. Japan is also among the world’s largest and most technologically advanced producers, dominating the export of electronic equipment, machine tools, steel and nonferrous metal, ships, motor vehicles, chemical, textiles, and processed foods. Another important factor contributing to the strength of the Japanese economy is the robotics industry; it possesses more than half of the world’s “working robots” (CIA, 2012). The agricultural sector is small, yet produces the highest crop yields in the world. It is highly subsidized, protected, and considered as an area of national pride (CIA, 2012). Rapid economic growth, high household consumption, and low interest rates lead Japan to the economic bubble known as the Asset Price Bubble, which started in the late 80s and lasted to the early 90s. Due to the...
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...Strategic Management Topic: PEST ANALYSIS OF JAPAN. Submitted To: Sir Faiez H. Sayel Submitted By: Ali Ahmad Majoka 006 Ifrah Javaid 045 Muhammad Habibullah 084 Nayab Ameen 115 Sharjeel Arslan 139 Zahid Yousaf 166 Qaiser Abbas 175 Section: MBA-13C COMSATS Institute of Information Technology, Lahore PEST Analysis of Japan: Political analysis: • Political System: Japan is a democratic country, but it is a very different kind of democracy to that prevailing in most of Europe in countries like France and Germany. The main reason for this is the dominant position of one party – the Liberal Democratic Party – which held power almost unbroken for more than 50 years. • The Diet Japan is a parliamentary kingdom governed by a Prime Minister and his cabinet. The parliament is called the Diet and is composed of the upper House of Councilors and the lower House of Representatives. The House of Representatives can be dissolved anytime by the Prime Minister. The lower house holds most of the decision power. The party which achieves a majority in the lower house can nominate the Prime Minister (usually the party president). • Political parties The Liberal Democratic Party (LDP) is the only stable party of the last 4 decades. It has been in power since its foundation in 1958, keeping an undisrupted majority in parliament. At the moment, the second most popular party is the newly founded Democratic Party...
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...analysis Strategic Management Topic: PEST ANALYSIS OF JAPAN. Submitted To: Sir Faiez H. Sayel Submitted By: Ali Ahmad Majoka 006 Ifrah Javaid 045 Muhammad Habibullah 084 Nayab Ameen 115 Sharjeel Arslan 139 Zahid Yousaf 166 Qaiser Abbas 175 Section: MBA-13C COMSATS Institute of Information Technology, Lahore PEST Analysis of Japan: Political analysis: • Political System: Japan is a democratic country, but it is a very different kind of democracy to that prevailing in most of Europe in countries like France and Germany. The main reason for this is the dominant position of one party – the Liberal Democratic Party – which held power almost unbroken for more than 50 years. The Diet Japan is a parliamentary kingdom governed by a Prime Minister and his cabinet. The parliament is called the Diet and is composed of the upper House of Councilors and the lower House of Representatives. The House of Representatives can be dissolved anytime by the Prime Minister. The lower house holds most of the decision power. The party which achieves a majority in the lower house can nominate the Prime Minister (usually the party president). Political parties The Liberal Democratic Party (LDP) is the only stable party of the last 4 decades. It has been in power since its foundation in 1958, keeping an undisrupted...
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...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...
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...Ushinawareta J!nen: Japan’s Lost Decade This paper aims to provide a discussion of the causes behind Japan’s Lost Decade – a marked slowdown in economic growth spanning ten years (1990-2000), when it experienced protracted slow growth and deflation (Werner, 2005). In the sections that follow, demand-side and supply-side causes will be discussed. This paper will also discuss inherent characteristics that could have contributed to the stagnation and conclude what factors were most important. One explanation behind Japan’s lost decade can be attributed to the bursting of the asset bubble, which caused a “balance-sheet adjustment” where the “erosion of capital bases” led to a fall in demand as people grew more cautious (Okina, Shirakawa, & Shiratsuka, 2001). Yoshikazu (1993) discusses the stagnation as caused by a “stock-adjustment recession”, in which he attributed reduced demand to not just asset deflation, but also excess inventory. Simply put, the frenzied buying during the boom logically meant a subsequent decline in demand, as consumers were not willing to buy more so soon. Another popular theory behind Japan’s lost decade concerns a credit crunch, i.e. a supply-side factor. While some thought that there was a credit crunch in that banks needed to reduce size of loans to meet the equity capital regulations (Yoshinori, 2000) following the bursting of the bubbles, Yoshikawa (2002) maintains that it was more of the fall in demand for bank loans due to declining profit opportunities...
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...Japan’s economy in 1990 was 73 times bigger than in 1950, an unprecedented amount of growth. In 1945, just 5 years earlier, Japan lay in shambles. They were the subject of bombardments for almost four years and had the first ever atomic bombs dropped on two of their major cities: Hiroshima and Nagasaki. Most of the infrastructure, such as factories and railroads had been destroyed. How did Japan go from absolute shambles to one of the world’s largest and most developed economies in such a short period of time? One theory credits Japanese Prime Minister Ikeda who used monetary and fiscal policies to lower interest rates and taxes resulting in more capital investment. Another more mainstream theory credits the United States’ post-war policy of helping Japan rebuild via political and financial assistance is often given credit for helping Japan develop. A final theory, which this paper will argue precludes American policy, cites shifts in Japanese attitudes away from loyalty to an emperor and instead towards democratic institutions resulting in improved living standards. Although many factors and policies contributed to Japanese economic growth after World War Two, without a shift in attitude from Japanese citizens it would have been impossible to have economic success. The cultural beliefs of Japan that prevailed through world war two came from the Meiji Restoration in 1868. The Meiji government had three political priorities which, after implemented, shaped the views of Japanese...
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... 1. Table of contents 1) Table of contents 2 2) Introduction – Japan’s aging population and the implications to its economy 3 3) Article summary 4 4) Fiscal and Social Implications 5 5) Japan, against uncontrollable forces 6 6) Unemployment 6 7) What policies should the government implement 7 8) Conclusion 8 9) References 9 10) Attached Article 10 & 11 2. Introduction - Japan’s aging population and the implications to its economy Japan is an island nation located in the Pacific Ocean, east of Asia. With neighbouring countries such as China, North and South...
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...government was unsuccessful 2. What lessons does the history of Japan over the past 20 years hold for other nations? What can countries do to avoid the kind of deflationary spiral that has gripped Japan? Other nations can learn from what happened with Japan. Strict lending practices should have been in place to begin with, this would help decrease the amount of bad debt. The Government need to watch its spending. Japan is stuck because its debt is so high, it is extremely difficult to become strong again. 3. What do you think would be required to get the Japanese economy moving again? In order to get the Japanese economy moving again, the Japanese government should do three things. First, fiscal stimulus that would raise the growth rate of the country above where it is at and where it is expected to be. Less unemployment and more job creation that way more...
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...Japan’s tough economic development of the 1980s ended at the start of the 1990s. At the end of 1980s, irregularities inside the Japanese economic organization had qualified a hypothetical asset price bubble of massive scale by Japanese enterprises, banks and securities corporations. The mixture of extremely high land prices and low interest rates temporarily caused sharp liquidity of the market. This led to enormous borrowing and strong investment mainly in domestic and global stocks and securities. Realizing that this bubble was unsupportable, the Finance Ministry of JAPAN precisely increased interest rates in late 1980’s. This severe course of action metaphorically bursted the bubble, and the JSE (Japan stock exchange) market collided. A debt crisis trailed and the Japanese banks and insurances were now burdened with uncollectable bills, uncollectable loans and had to write off many debts as bad debts. The financial associations were bailed out from the government, credits from the reserve bank or known as central bank and the ability to delay the acknowledgement of losses, eventually turning them into the banks whose net worth is less than or so called Zombie banks. Zombie banks are considered to be one of the important causes for the Japan economic stagnation. Michael Schuman ( Asia business correspondent for Time Magazine ) said that Japan's economy would not have started to improve until this practice had terminated, he also indicated that these banks kept inserting more...
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...thrive. All these conditions led the growth rare to increase from 0.1% in 2004 to 0.3% in 2013 (Trading Economics), however it is still considered low since it only increase 0.2%. In general we can come to a conclusion that the Japanese economy is healthy and is experiencing a positive growth. Since we already know that the economy in Japan is booming it would be rational to say that there are new opportunities for new positions in the market, the demand for workers will increase which is typical in an expanding economy. When there are more people working, more people are paying taxes to the government and when people work more the purchasing ability increases so we there will be an increase in the consumption, because of that the unemployment rate will decrease and that’s exactly what is happening in Japan. Japan had experienced a drop in the...
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...they are positive and hopeful that the government is working for future improvement. 1.2 Issues 1.2.1 Transport is the third highest overall priority in South Africa society 1.2.2 The public’s top three issues were public transport, the high accident rate and the cost of fuel 1.2.3 The survey found that the outlook for the future was better, with 43% of South Africans thinking transport in their local area would improve in the coming years. 1.2.4 Majority of the respondents said there should be more private sector involvement in the provision of public transport. ARTICLE 2 : WHY JAPAN’S HIGH-SPEED TRAINS ARE SO GOOD 2.1 Summary Countries wanting high-speed trains can look to Japan’s example which refers to connecting the densely-populated areas by train, privatizing rail companies, and encouraging rail companies to be involved with development around the rails for extra revenue to be reinvested to the rail system. 2.2 Issues 2.2.1 Japan’s high-speed bullet train is often held up as an exemplar by rail boosters and government keen to acquire their own shiny new train-sets. 2.2.2 Trains are symbolic of modernity in Japan. 2.2.3 Geography influenced the rail network’s development: most of Japan’s 128m inhabitants live in a few densely-populated part of the country. 2.2.4 Many of the customers were rich and willing to pay for more expensive high-speed tickets. 2.2.5 The ability to build large developments alongside the high-speed railways is a boon...
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...Japan's lost decade and the present financial crisis As world and consumer prices continue to drop, there is renewed fear of deflation. The nightmare scenario is Japan's 'lost decade'. Michael Lim Mah Hui explains what happened in Japan and considers the prospect of a similar fate. IN the last 37 years (1970-2007), there have been 124 banking crises, an average of 3.4 every year (Laeven and Valencia, 2008). Some have been minor, others very serious and long-lasting, like the one in Japan from 1991 to 2002. The most recent is the financial crisis that started in the US in July 2007 and is playing out in front of us today. It is also the most serious, systemic, and global since the Great Depression of 1932. A banking or financial crisis can be defined as a dislocation of the banking system where a significant number of banks and other financial institutions become illiquid and insolvent due to massive defaults on bank loans and other assets. An escalation of non-performing assets of banks will result in heavy losses depleting banks' capital. Banks become insolvent when their debt obligations (liabilities) exceed the value of their assets, i.e., the sale proceeds from their assets are inadequate to pay for their debts. Conditions preceding a banking crisis - financial deregulation Unbridled deregulation of the financial industry is at the heart of financial instability and crises. What began as a trickle became a wave and today it has broken loose as a financial tsunami...
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