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Japan and It's Economic Evaluation

In: Social Issues

Submitted By jamesource
Words 5708
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Student Economic Review, Vol. 17, 2003, pp. 153-165

JAPAN IN THE DOLDRUMS: A STUDY OF DEFLATION AND 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 compared to 3% in the USA. (Jones) 153

154

JAPAN IN THE DOLDRUMS: A STUDY OF DEFLATION AND RECESSION

managed to hit simultaneously all the major macro economic targets - fast growth, low inflation, full employment and a current account surplus.” (Jones, 2001) Such was the seemingly

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