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Japan Economic Growth Essay

1215 words - 5 pages

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 ...view middle of the document...

Most of these technically insolvent firms were protected from foreign competition and many were small. And they were often better at lobbying local politicians for forbearance than producing what consumers wanted at competitive cost. Most of these enterprises were too much in debt to do much more than stay alive on bail-out funds. Finally, most of these weakening companies became unsupportable, and merging of companies started to take place, turning the four important national banks in Japan. Several Japanese businesses were loaded with huge debts, and it turn out to be very difficult to take loans or credit from the bank. Therefore during the time from 1990 till 2010 was known as "lost decade", this was when the economy slowed down or grew at a miserable rate. Unemployment rates were on the rise, but not at a threatening level. Many Japanese firms substituted a large part of their labour force with temporary workers, who had little or no job security and very few aids. Japan’s economy has not been fully recovered yet and is still making efforts to overcome from this situation.

The “Lost decade” was there for more than 20 years and Japan was trying hard to get back on track. To end the era, it used aggressive monetary easing to depreciate the value of their currency Yen in the global market. The Bank of Japan had retained short-term interest rates somewhere around zero ever since 1999. With quantitative easing, commercial banks were flooded with surplus liquidity to promote private loaning, giving them large stocks of excess capitals, and hence little risk of shortage of liquidity. The BOJ achieved this by purchasing many government bonds than would be essential to fix the interest rate to zero. The Bank of Japan allowed the commercial bank current account balance to increase from ¥5 trillion yen to ¥35 trillion for a 4-year period beginning in March 2001.Bank Of Japan made three times the amount of long-term Japan government bonds it could purchase on a monthly basis. In 2010, the BOJ declared that it would scrutinize the purchase of ¥5 trillion in assets. This was an effort to bring down the value of yen against the U.S. dollar to motivate the local economy by making their exports cheaper.
"While supporting a rise in exports, a further impact of a weaker currency was to raise the price of imported raw materials. Latest data showed that average input costs rose for the fourth month in succession, and at the sharpest rate in over a year- and-a-half. Margins subsequently remained under pressure as a net fall in output charges was recorded for the twenty-first month in a row." 
(A statement in the latest Japan manufacturing PMI report )
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