This report will examine the economic stagnation in Japan in the 1990s. The second section will introduce the events in the 1990s and give the most important features, followed by a closer look at the chain of events, explaining what caused what in a chronological approach. From there, we will introduce a set of possible reasons for the depicted developments and the theoretical frameworks in the third and fourth section which will then lead to our conclusion based on the analysis given before, accommodating the conclusion of Krugman of Japan being in a liquidity trap in our findings. 2. Japan in the 90s - summarizing macroeconomic developments
This section will introduce the phases considered, the building the “bubble” in the 80s, “burst” of the bubble in February 1991, continuous recession and seeming recovery in 1996 and renewed economic downturn from 1997 on until 2000, the end of the considered timeframe.
a. Build-up of booming asset and real estate market - “bubble economy” Japans Economy in the 80s showed strong growth of above average, e.g. 4.1% ten year average growth in 1986 (Weinert, 2001, p. 461) and very low inflation (Baig, 2003, p. 5). Declining regulation of the financial sector and generally lax regulation led to a creditfuelled boom in the land- and asset-markets (Schrooten, 2000, p. 2). Within this process, the boom-financing bank-loans were built on collaterals of mostly land or stocks, accumulating risks in the loan books of the banks (Woo, 1999, p.7). b. “Burst” of the bubble
By 1989, the Japanese stock market peaked, in 1992, land prices start to decline. Both are related to government intervention, the stock market was affected by a change of the discount rate by the Bank of Japan (BoJ) and the latter was influenced by a restriction of maximum loans to real estate in April 1990 (Baig, 2003, p. 8). The economic downturn in the aftermath was worsened by interconnection of bank loans and declining value of collaterals.
Inhaltsverzeichnis (Table of Contents)
- 1. Introduction
- 2. Japan in the 90s – summarizing macroeconomic developments
- a. Build-up of booming asset and real estate market – “bubble economy”
- b. "Burst" of the bubble
- c. Economic down-turn and weak recovery until the “Big Bang” in 1997
- d. "Big Bang" in 1997
- e. Summarizing the macroeconomic situation of Japan in the 90s
- 3. Main economic problems
- a. Burst of the bubble and its troubled financial sector
- b. Low inflationary expectations and excess capacities
- c. Ageing Society
- d. Deflation costly skewing of the economy
- e. Summarizing the mechanism
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This report aims to analyze the economic stagnation experienced in Japan during the 1990s. It seeks to trace the sequence of events, identify contributing factors, and explore relevant theoretical frameworks to understand this period of economic downturn. The analysis incorporates Krugman's concept of a liquidity trap to interpret the findings.
- The burst of Japan's asset price bubble in the early 1990s.
- The resulting crisis in Japan's financial sector.
- The impact of deflationary pressures and low inflationary expectations.
- The role of structural factors, such as Japan's aging population and high savings rate.
- The effectiveness (or lack thereof) of government economic policies during this period.
Zusammenfassung der Kapitel (Chapter Summaries)
1. Introduction: This introductory chapter sets the stage for the analysis of Japan's economic stagnation in the 1990s. It outlines the report's structure, promising a chronological examination of events, an exploration of contributing factors, and a discussion of relevant theoretical frameworks, ultimately incorporating Krugman's liquidity trap theory into the conclusion.
2. Japan in the 90s – summarizing macroeconomic developments: This chapter provides a comprehensive overview of Japan's macroeconomic performance throughout the 1990s. It details the phases of economic development, beginning with the "bubble economy" of the 1980s, its subsequent burst in 1991, and the prolonged period of recession and weak recovery that followed. The chapter highlights key events, such as the collapse of "jusen" companies and the "Big Bang" reforms of 1997, emphasizing their impact on the financial sector and overall economic growth. The chapter concludes by summarizing the decade's macroeconomic picture, showcasing persistent stagnation characterized by slow growth, rising unemployment, and increasing government debt.
3. Main economic problems: This chapter delves into the interconnected problems that fueled Japan's prolonged economic stagnation. It begins by examining the consequences of the burst bubble on the financial sector, highlighting the vulnerabilities of Japanese banks and the resulting surge in non-performing loans. The chapter then discusses the role of low inflationary expectations, high savings rates, and overcapacity in hindering economic recovery. The impact of Japan's rapidly aging population and its implications for aggregate demand and potential output are also explored. Finally, the chapter analyzes the detrimental effects of deflation, particularly its impact on investment, profitability, and the effectiveness of monetary policy, illustrating how multiple factors intertwined to create a complex economic crisis.
Schlüsselwörter (Keywords)
Japanese economic stagnation, asset price bubble, financial crisis, deflation, liquidity trap, aging population, high savings rate, government policy, macroeconomic development, non-performing loans.
Frequently Asked Questions: Analysis of Japan's Economic Stagnation in the 1990s
What is the overall topic of this report?
This report analyzes Japan's economic stagnation during the 1990s. It examines the sequence of events leading to the downturn, identifies contributing factors, and explores relevant economic theories to explain this period.
What are the key themes explored in this report?
The report's key themes include the burst of Japan's asset price bubble, the subsequent financial crisis, deflationary pressures, the impact of Japan's aging population and high savings rate, and the effectiveness (or lack thereof) of government economic policies during this period. The analysis incorporates Krugman's concept of a liquidity trap.
What are the main chapters and their content?
The report is structured into three main chapters:
- Chapter 1: Introduction provides an overview and sets the stage for the analysis.
- Chapter 2: Japan in the 90s – summarizing macroeconomic developments details the macroeconomic performance throughout the 1990s, from the "bubble economy" to its burst and the subsequent recession. Key events like the "Big Bang" reforms are discussed.
- Chapter 3: Main economic problems delves into the interconnected problems that prolonged Japan's stagnation, including the financial sector crisis, low inflationary expectations, high savings rates, overcapacity, the aging population, and the detrimental effects of deflation.
What specific macroeconomic developments in the 1990s are covered?
The report covers the build-up and burst of the asset and real estate bubble ("bubble economy"), the subsequent economic downturn, the weak recovery, the "Big Bang" reforms of 1997, and a summary of the overall macroeconomic situation throughout the decade.
What are the main economic problems discussed?
The main economic problems discussed include the burst bubble's impact on the financial sector (including non-performing loans), low inflationary expectations, excess capacities, the aging society, the costly effects of deflation, and the interplay of these factors.
What theoretical framework is used to analyze the situation?
The report uses Krugman's concept of a liquidity trap to interpret the findings and understand the prolonged economic stagnation.
What are the key words associated with this report?
Key words include Japanese economic stagnation, asset price bubble, financial crisis, deflation, liquidity trap, aging population, high savings rate, government policy, macroeconomic development, and non-performing loans.
What is the purpose of the report?
The report aims to analyze Japan's economic stagnation in the 1990s, tracing the sequence of events, identifying contributing factors, and exploring relevant theoretical frameworks for understanding this period.
- Citar trabajo
- BA (Hons) Business Economics Henning Schmidt (Autor), 2005, The economic stagnation in Japan in the 90s, Múnich, GRIN Verlag, https://www.grin.com/document/68029
