...Deflation in Japan impacts economical growth and damages the financial health of the banking system. It is a unique phenomenon that intrigues many economists. Japan has the third largest economy in the world, yet it is unable to find effective ways out of stagnation and deflation. There are many opinions regarding deflation, its causes, and affects. 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...
Words: 1970 - Pages: 8
...with ongoing concerns about deflation risks, has made comparisons with Japan’s so-called “lost decades” Top of Mind. We ask three experts whether the Euro area is set to repeat Japan’s prolonged period of stagnation and deflation: former BOJ Governor Masaaki Shirakawa (unclear, but Euro area recovery requires addressing the underlying problem of economic integration and not its symptom, deflation), GS Chief European Economist Huw Pill (low growth and even some deflation similar to Japan, in terms of outcome if not in terms of causes, are likely in the short term, but – also akin to Japan – a deflationary spiral is not), and LSE Professor Paul De Grauwe (there is a real risk of this outcome or worse unless policies change). We conclude that Euro area economies and assets could escape Japan’s fate but warn that Euro area stagnation would have a greater impact on the global economy than did Japan’s. Inside Interview with Masaaki Shirakawa Former Governor of the Bank of Japan 4 Headed for Japanese-style deflation? Silvia Ardagna, GS Rates Strategy 6 Interview with Huw Pill GS Chief European Economist 8 Euro area stagnation and its discontents Jose Ursua, GS Global Economics Research 10 Interview with Paul De Grauwe Professor, London School of Economics 14 European equities: a different story Sharon Bell, GS Portfolio Strategy 16 A look back at Japan’s deflation drivers Naohiko Baba, GS Japan Economics 18 Source: www.istockphoto...
Words: 18121 - Pages: 73
...Table of Contents Why were Keynesian ideas revolutionary? 2 How does Keynes theory work? 4 What economic conditions in your news article that require government intervention? Do you have faith that this intervention will be effective? 7 How have the economists’ views on Keynesian economics changed over time? 9 Is Keynesian economics dead today? 12 Works Cited 14 Appendix A 15 Why you should be wary of the Japanese “revival” 15 Why were Keynesian ideas revolutionary? Keynesian economics is a macroeconomic theory developed by John Maynard Keynes, who is a British economist. According to Keynesian theory, government intervention plays an important role in the economy, and focuses on short-term goals. It is used mostly in times of recession, inflation, unemployment to stabilize the business cycle, therefore active government policy is required and government spending is a good way to put money back into the GDP. (hupii.com) Keynes is famous for his simple explanation for the cause of the Great Depression during the 1930s. His idea was based on a circular flow of money, which states that when spending increases in an economy, earnings will also increase, and the outcome it will lead to even more spending and earnings (economic growth). His ideas had led to a revolution in economic thought. (martinfrost.ws) During the period of World War 2, United States president has spent enormously huge on defence which has that helped revive the U.S economy. Besides...
Words: 3095 - Pages: 13
...the economic stimulus package at end of 2012, (also known as the “The three arrows of Abenomics” which was meant to steer Japan out of two decades of deflation), its economy experienced a short recovery but fell short of the central bank’s target of 2 % inflation rate. The unexpected brief recession came about after the government introduced a sales hike in April 2014. The early 2015 economic data has shown signs of recovery with bigger Japanese companies announcing wage hikes but other indicators like the production manufacturing indicators (PMI) and households spending remain weak and that may mitigate its recovery. In the following discussion, we will discuss briefly the economic background of the Japanese economy after the war II and how it went into two decades of deflation. Further discussions will also focus on the economic stimulus package implemented by the Abe Administration (three arrows) and its effects on the economy. Brief background of Japanese economy from 1960 to 1990 and its “lost decades” According to an article by Sundar, A (2013) and Khan (2003), Japan began rebuilding its infrastructure and economy by investing heavily in capital equipment (30% of GDP) and began exporting its products. This resulted in huge trade surplus with the US. Khan (2003) then reported that the Japanese government signed the Plaza Accord in 1985, (which sought to weaken the major foreign currencies against the yen to encourage foreign capital investments for Japanese companies)...
Words: 1999 - Pages: 8
...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...
Words: 2839 - Pages: 12
...What Can The US Learn from Japanese Bubble 1. Easy monetary policy works, but there are risks in the exit. The Federal Reserve’s quantitative easing measures over the past few years have allowed the U.S. economy breathing room to get back on its feet after the worst downturn since the Great Depression. But there are risks that still lurk. If policymakers increase taxes too soon, or if they read the recovery prematurely, they could put the still-tentative U.S. economic recovery in real danger, Goto said. “It’s difficult to measure whether this economic recovery has legs or not,” she said. “In hindsight, the BOJ had misread a lot of the performance of the Japanese economy, and had toyed with the idea of ending that gush of money. What Abenomics has been able to do is to turn back on the spigot,” she said, referring to the current Japanese Prime Minister Shinzo Abe’s plan to breathe life back into Japan. “Japan should have been doing that a lot earlier, so that a comeback could have been easier,” Goto added. “We can learn from that." 2. You can’t divorce financial markets from ‘Main Street’s challenges. Consider what has happened in Japan in recent months. After two decades of subpar performance, the stock market there staged a sharp rally last year, tacking on gains of about 50 percent in roughly 13 months. Japanese stocks took off because of an aggressive round of new easing that was the first part of Abenomics. But what came next was an increase in the consumption tax...
Words: 749 - Pages: 3
...WORKING PAPER SERIES TWO DECADES OF JAPANESE MONETARY POLICY AND THE DEFLATION PROBLEM Takatoshi Ito Frederic S. Mishkin Working Paper 10878 http://www.nber.org/papers/w10878 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 October 2004 This paper is written for the NBER 15th East Asian Seminar on Economics, June 25-27, 2004. The authors are grateful to Takeshi Kudo and Emilia Simeonova for their excellent research assistance. We also thank our discussants Ken Kuttner, and Kazuo Ueda, Kunio Okina and participants at seminars at the Bank of Japan, and the East Asian Seminar on Economics. Any views expressed in this paper are the views of the authors only and not the University of Tokyo, Columbia University or the National Bureau of Economic Research. The views expressed herein are those of the author(s) and not necessarily those of the National Bureau of Economic Research. © 2004 by Takatoshi Ito and Frederic S. Mishkin. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Two Decades of Japanese Monetary Policy and the Deflation Problem Takatoshi Ito and Frederic S. Mishkin NBER Working Paper No. 10878 October 2004 JEL No. E42, E52, E58 ABSTRACT This paper reviews Japanese monetary policy over the last two decades with an emphasis on the experience of deflation from the mid-1990s. The paper is quite critical...
Words: 31497 - Pages: 126
...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...
Words: 2202 - Pages: 9
...1. Introduction The Global financial and economic crisis in 2007 and a liquidity crisis of the world's leading banks force us to reconsider the debt relations. Credit boom accompanied by rising debt payments, could not continue persistently. Debt servicing was possible only with high incomes or assets value of the debtor, and as soon as the growth of income or assets stopped, the debtors have faced problems in servicing their debts: in spite of the decline in income and assets value of debt borrowers’ debt during the crisis did not reduce. As a result, the debtors faced decoupling of debts from assets. According to Minsky decoupling between firms’ debt and assets, or the debt crisis caused by the cyclical nature of economic development: at...
Words: 2332 - Pages: 10
...unemployment, and debt? Over the last ten years Japan had a tremendous growth. It is no surprise for a country like Japan to have an increase in GDP among the last ten years; it had a GDP of $4.3 trillion in 2004 and kept increasing till it reached $5.96 trillion in the end of 2013 (Trading Economics, 2013). This significant increase in in the GDP is due to the increase in the net exports, since nowadays Japan is known as the world’s second largest developed economy. Japan exports a lot of automobiles because it is one of the leading countries in the production of automobiles that are spread all over the world. Moreover, Japan is the largest creditor nation while running an annual trade surplus. The GDP per capita increased from $29369.49 in 2004 to $31425.49 in 2013 (Trading Economics, 2013) meaning that the economy is vigorous since people are earning more so they have more disposable income to spend which vitalities the economy and the services thus leading the economy to 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...
Words: 7147 - Pages: 29
...What is Deflation? Author Talks about The definition Of deflation & When deflation, And it is hard to Tell when deflation Actually poses a Problem-or when It is shown in price Expecations- uses Japan as example. Author Talks about The definition Of deflation & When deflation, And it is hard to Tell when deflation Actually poses a Problem-or when It is shown in price Expecations- uses Japan as example. Deflation is a persistent fall in some generally followed aggregate indicator of price movements, such as the consumer price index or the GDP deflator. Generally, a one-time fall in the price level does not constitute a deflation. Instead, one has to see continuously falling prices for well over a year before concluding that the economy suffers from deflation. How long the fall has to continue before the public and policy makers conclude that the phenomenon is reflected in expectations of future price developments is open to question. For example, in Japan, which has the distinction of experiencing the longest post World War II period of deflation, it took several years for deflationary expectations to emerge. One reason for Why deflation Can be bad for The macroeconomy, Although not necessarily linked. One reason for Why deflation Can be bad for The macroeconomy, Although not necessarily linked. Most observers tend to focus on changes in consumer or producer prices since, as far as monetary policy is concerned, central banks are responsible...
Words: 3724 - Pages: 15
...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 of Japan (DPJ). It defeated the LDP by a single seat at the last Upper House election in 2004. The Komeitō or "Clean Government Party" (CGP) is currently the third major party, but only account for 5 to 10% of the seats. It is the political branch of the controversial postwar Buddhists. Other parties include: the Japanese Communist Party, which stay with a constant 3 to 5% of the seats...
Words: 2213 - Pages: 9
...[pic] TABLE OF CONTENTS EXECUTIVE SUMMARY 4 INTRODUCTION 5 KONGO GUMI ENVIRONMENT 7 Feudal Japan 8 The Restoration of Edo 8 The Meiji Restoration 9 World War 1 12 The Mid War Period 13 World War 2 15 The Occupation of Japan and Post War Reconstruction 16 The Economic Miracle 17 The Lost Decade 18 Global Financial Crisis 19 Natural Disasters 20 Abenomics 21 STRATEGIES KONGO GUMI USED TO SURVIVE TURBULENCE 23 Kongo Gumi in the 20th Century 23 Meiji restoration 23 The Mid War Period 24 World war 11 24 KONGO GUMI WOULD HAVE SURVIVED IF: 25 WOULD KONGO GUMI HAVE SURVIVED IF IT MADE IT THROUGH TO THE ABENOMICS ERA? 26 LESSONS FROM KONGO GUMI 27 CONCLUSION 28 REFERENCES 31 Appendix 1 – Infographic of Japan’s timeline EXECUTIVE SUMMARY Kongo Gumi was a success as it operated in a stable industry. The belief system has survived for thousands of years and has many millions of adherents. With this firm foundation, Kongo had survived some tumultuous times. The temple construction had until recently been a reliable mainstay, contributing 80% of Kongo Gumi's $67.6 million in 2004 revenues. The story of Kongo Gumi suggests that firms should blend elements of conservatism and flexibility. This means that firms should stay in the same business for more than a millennium and...
Words: 6387 - Pages: 26
...recession despite attempts by Government to stimulate economic growth over years. The Gross Domestic Product (GDP) growth is not as great as it was before asset-price bubble. The monetary measures implemented by Japan new government to solves two-decades of sluggish growth has been brought up to G20 meeting at Moscow on February 2013, to determine on its compatibility with G20 agreement. It has been endorsed by G20 communities for its important role in global economy. Economist anticipated recovery would be slow as deflation has raged in Japan for near to two-decades. This paper examines the deflation issues in Japan; to shed some lights on the causes of deflation and several issues arises from prolonged deflation. Lastly, new stimulus package to expand economy will be highlighted. The effectiveness and potential side effects of policy will be discussed. Deflation, which was not a serious monetary issue has entrenched and gained attention globally for its prolonged effects in Japan. (Bernanke 2003). According to Blink and Dorton (2007), deflation occurs when average price level has generally declined. Deflation refers to situation where inflation rate falls below zero zones. It is categorized into two board explanation. “Good” deflation finds it source from improvement on supply side of economy. As figure (1) refers, increased Aggregate Supply (AS) will increase the real output and leads to decline in price level. “Bad” deflation results from demand side of economy. As figure (2)...
Words: 2191 - Pages: 9
...Abenomics is the name given to a suite of measures introduced by Japanese prime minister Shinzo Abe after his December 2012 re-election to the post he last held in 2007. Abe has focused his second term on turning around his country's moribund economy. The economic policies that Abe supports include an aggressive set of monetary, fiscal, and structural reforms geared toward spurring inflation and pulling Japan out of its decades-long deflationary slump. The broad goal is to boost annual GDP growth, which currently stands at 2 percent, and raise inflation to 2 percent via short-term stimulus spending, monetary easing, and reforms that will boost domestic labor markets and increase trade partnerships. Back in September 2012 before Abenomics took a place, the country was suffering its third recession in four years. The yen was uncomfortably strong (trading at 78 to the dollar), the stock market was unsurprisingly weak (the TOPIX index was about 743), and consumer prices (excluding food and energy) were falling for the 45th month in a row. To help us understand better why some changes were necessary let’s look closer on Japanese economic history. Japan's chronic deflation has resulted in weak demand, despite interest rates floating at 0 percent for years. Over the past two decades, the Japanese government has spent trillions of dollars in various bids to lift its economy out of a severe downturn catalyzed by the bursting of a real estate bubble in the late 1980s. The bursting of...
Words: 1018 - Pages: 5
