Japan's Economic Crisis

Paper Summary:

Japan is currently in its worst recession since World War II. The country's economy slowed dramatically in the early 1990s after the bubble economy of the 1970s and 1980s. This paper takes a detailed look at what caused Japan's economic crisis and subsequent problems related to the declining Gross Domestic Product (GDP), failed stimulus packages, banking inefficiencies, ineffective interest rate policies, deflation, currency devaluation, and Japan's aging population. Given a consideration of all these factors, the writer makes recommendations most likely to have a positive impact in rejuvenating Japan's struggling economy. The paper concludes that Japan's best course of action includes raising its nominal GDP by increasing its monetary base, engaging in massive bank restructuring, using inflation targeting techniques, and putting distressed real estate and other foreclosed collateral on the market.

From the Paper:

"In early 1990, the Bank of Japan raised interest rates and put a squeeze on credit. But it was done too abruptly. As a result, the Stock Exchange soon lost half its value and property prices dropped by sixty percent to eighty percent. The banks, finding themselves with a mountain of bad debt, drastically cut back credit. This in turn led to the collapse of thousands of small and medium-sized companies. All this has created a profound sense of shock contributing to negative growth. The Unemployment rate of 5.4 percent in 2002 now stands higher than at any point since 1953."

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