1990 JAPANESE RECESSION

GROUP MEMBERS ANSHUL BHURIA AAYUSH SINGLA AMIT SHARMA AMIT MITTAL BALRAM CHOUDHARY

THE GREAT RECESSION IN JAPAN

Japan, the world’s second largest economy, is experiencing the worst economic crisis since the Second World War and the government is attempting to avoid a return to the “lost decade” of the 1990s .when it was stuck in a deflationary spiral. To fight back recession, the Bank of Japan has kept the interest rate to 0.1 %, even lower than Bank of England’s 0.5 %. Japan’s economy has grown only at an average of 1% annually since 1992. Equally, the country’s recovery of 2003-07 did not have any long term effect on the growth.

LOST DECADE (JAPAN) The Lost decade or the lost 10 yrs is the

time after the japanese asset price bubble collapse within the japanese economy.

The term originally referred to the year 1991 to 2000.

Over the period GDP fell from $5.33 to $4.36 trillion in nominal terms.

Real wages fell around 5% while the country experienced a stagnant price level.

JAPANESE ASSET PRICE BUBBLE The Japanese asset price bubble was an

economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated.

The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion.

More specifically, over-confidence and speculation regarding asset and stock prices had been closely associated with excessive monetary easing policy at the time.

CAUSES OF RECESSION

Firstly, we analyze that the capital-loss cause of deflation

the core problem in Japan is the deflation of assets.

And the most common cause is bank deregulation and the loss of large corporate borrowers in the early 1980s led banks to overlend to risky borrowers (SMEs, real estate developers) without proper risk management

the yen's appreciation hit the export sector hard, reducing economic growth from 4.4 percent in 1985 to 2.9 percent in 1986.

During the period January 1986 and February 1987, the Bank of Japan (BOJ) cut the discount rate in half from 5 percent to 2.5 percent.

EFFECTDifficult times in the 1990s made people frown on ostentatious displays of wealth, while Japanese firms such as Toyota and sony which had dominated the industry in the 1980s had to fend off strong competition from rival firms based in other East Asian countries — especially South Korea Many Japanese companies replaced a large part of their workforce with temporary workers, who had little job security and fewer benefits. As of 2009, these non-traditional employees made up more than a third of the labor force.And for the wider Japanese workforce, wages have stagnated. From their peak in 1997, real wages have since fallen around 13% — an unprecedented number among developed nations.  It took 12 years for Japan's GDP to recover to the same levels as 1995. And as a greater sign of economic malaise, Japan also fell behind in output per capita. In 1991, real output per capita in Japan was 14% higher than Australia's, but in 2011 real output has dropped to 14% below Australia's levels.

INTERPRETATION Economist Paul Krugman has argued that Japan's

lost decade is an example of a liquidity trap. He explained how truly massive the asset bubble was in Japan by 1990, with a tripling of land and stock market prices during the prosperous 1980s. The cozy relationship of corporations to banks and the implicit guarantee of a taxpayer bailout of bank deposits created a significant moral hazard problem, leading to an atmosphere of crony capitalism and reduced lending standards. He wrote: "Japan's banks lent more, with less regard for quality of the borrower, than anyone else's

CHINESE SLOWDOWN IS HITTING JAPAN

Monthly value of exports, thousand billion Yen

Japanese Exports to China

Source: Reuters EcoWin

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UNEMPLOYMENT RISE AFTER 1990

Percentage of the labour force, seasonally adjusted, monthly rate

Unemployment in Japan

Source: Reuters EcoWin

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

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STOCK PRICES FLOUNDER

Daily close

Japan, Nikkei Stockmarket Index

Source: Reuters EcoWin

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

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