Japanese Economic Crisis and Deflation

In: Business and Management

Submitted By Moochie
Words 3471
Pages 14
Contents
I. EXECUTIVE SUMMARY 2
II. BACKGROUND 3
III. WHAT LED TO THE RECESSION? 4
IV. THE LOST DECADE 5
V. FISCAL POLICY 8
VI. MONETARY POLICY 9
VII. COMPARISON BETWEEN JAPAN AND THE U.S. 12
VIII. EXHIBITS 15
A. CHART 1 – GENERAL GOVERNMENT GROSS DEBT AS % OF GDP - COMPARISON 15
B. CHART 2 – NOMINAL GDP OF JAPAN - TREND 16
C. CHART 3 – REAL GDP OF JAPAN - TREND 17
D. 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 of the…...

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