Japan Recession Response Paper

Japan Recession Response Paper

Abstract

After the second world war, the economy of Japan grew massively, and the annual growth was reported to be about ten percent from the year 1955 to the year 1970. In the 1970s and the 1980s, the increase was still high at 5 percent. However, there were large bubbles on the economy that developed within the property and the market stocks within the late 1980s that led to a complete collapse of the economy. This meant that there was a prolonged growth that took place in the 1990s in what is known as the lost decade. There have been numerous lingering effects if the lost decade that was felt in the 2000s as the country tried to recover from the year 2005. The world also experienced a massive recession from the year 2008 to the year 2009. The recovery was also affected by the earthquake that took place in March 2011 that was followed by the tsunami. The economy of Japan is the third highest and is still facing numerous challenges such as the weak growth rate that was felt in the last two decades due to the structural problems and deflation that have been in existence from the 1990s. The public debt and the repeated plans by the government to stimulate the economy is the other problem. The newly elected government that is led by the prime minister put out the plans to embark on the recovery and revitalization to return the fortunes of Japan. The policies have been known as Abenomics. This study will analyze the causes and consequences of the most prolonged and most severe recession in Japanese History and the future of Abenomics in Japan.

Keywords: causes of the recession, the Japanese economy,  Japanese history, severe recession, bank rates, stock downfall, the future of Abenomics, public debt, economic stimulus.

 

Introduction

After the second world war, the economy of Japan grew massively, and the annual growth was reported to be about ten percent from the year 1955 to the year 1970. In the 1970s and the 1980s, the growth was still high at 5 percent. However, there were large bubbles on the economy that developed within the property and the market stocks within the late 1980s that led to a complete collapse of the economy (Corden, and Jayasuriya, 2016). This meant that there was a prolonged growth that took place in the 1990s in what is known as the lost decade. There have been numerous lingering effects if the lost decade that was felt in the 2000s as the country tried to recover from the year 2005 (Glosserman, 2019). The world also experienced a massive recession from the year 2008 to the year 2009. The recovery was also affected by the earthquake that took place in March 2011 that was followed by the tsunami. The economy of Japan is the third highest and is still facing numerous challenges such as the weak growth rate that was felt in the last two decades due to the structural problems and deflation that have been in existence from the 1990s. The public debt and the repeated plans by the government to stimulate the economy is the other problem. The newly elected government that is led by the prime minister put out the plans to embark on the recovery and revitalization to return the fortunes of Japan. The policies have been known as Abenomics (Wei, 2017).  Numerous interventions have been put in place to deal with the new interventions and processes to speed up the economic recovery process. Some of the most common problems that are faced by Japan include the high debt that the government owns and the deflation of the country. Even though the economy of Japan is currently the third largest in the whole globe, the weak growth of the economy has been witnessed in the last two decades, and there are structural problems that have led to these kinds of problems.  The deflation is accompanied by the massive decries in the prices of the goods that are produced in Japan. This has retrenched from the year 1996 and has contributed massively to deflation in the country.  Deflation has had a massive effect on the economy. The other problem is the high level of public debt that has increased through time.  The weak economy together with numerous initiatives of the government stimulus have led to the unparallel levels of debts in the major economies. The gross debt was at 238 percent in the year 2012 (Nakano, 2016). If compared to some of the best economies such as the UK, the level stands at 90 percent.

Despite these problems, Japan still has the third highest economy only falling behind the united states and China. Consequently, the prime minister  Shinzo Abe started the radicalization plan that revitalized the country. Some of the policies that the prime minister embarked on include the monetary policy, the fiscal policy, and the structural reforms.  The monetary reforms involve the bank of Japan that have drastically expanded the easing program qualitatively. This allowed the country to become more aggressive in reducing deflation through the injection of more money into the economy.  The second policy is the fiscal one that deals with the short term stimulation of the approaches that boosts the economic activities with numerous plans to eliminate the deficit. This stabilizes the debt of the public level (Yoshino, 2018). The other policy is the structural reforms witnessed in the country. This is the growth strategy that is focused on the long term solutions to the labor market. The other is the deregulation of different sectors within the economy of the country.

Background of the economic transition in Japan

After the war, there was a rapid growth of the economy in Japan that started in the year 1955.  The growth increased up to the 1980s. However, the larger bubbles in the economy developed in the stock and property market that started in the year 1989.  By the mid-1980s, there were several imbalances in the leading economies in the world. This meant that the G5 countries had to hold a meeting in new york to help the situation. The members of the G5 countries include  Japan, USA, UK Germany, and Frace.  The agreement from the meeting was known as the plaza accord that led to numerous interventions within the foreign exchange market. The agreement was to strengthen the Japan currency as well as the currency of West Germany against the US dollar. The Yen and the Deutschmark were to have more value as compared to the US dollar.  This was also done with the intention of reducing the large surplus of trade in the two countries, Japan and West Germany to help with the reduction of the existing trade deficits in the US.

The agreement resulted in a massive increase in the value of the yen that massively appreciated up to 46 percent against the value of the US dollar.  At the end of the year 1986, the Yen value was almost 0.5 times more valuable than the united states dollar.  As a result, it was not easy to but the Japanese goods at the international level.  The Japanese exporters suffered as a result of an increase in the. The growth started to decline from 6 percent in 1985 p to 2 percent in the year 1986. Mitigation of these effects led to the bank of Japan cutting off the interest rates from 5 percent to 2.5.

(Yoshino, 2018) .

The continuously reducing rates of interest and the tax reforms gave the stimulus that helped in the boosting of the economy for a short time. The annual GDP was realized at the rate of 5.5 percent from the year 1987 to the year 1990. This was followed by slow growth in the 1990s. The period led to lasting effects that was even felt in the 2000s s the economy was being recovered. However, the deep economic recession that was wi

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