Japan

Paper Summary:

This paper explains that, for the past ten or twelve years, Japan has been a miracle of contradictory economic factors, experiencing little inflation, little economic growth, a deterioration in trade, more government spending than previously, and unreliable savings and investment, both by business and individuals. The author points out that, in the year 2000, for the first time, Japan?s unemployment rate had exceeded that of the United States; but this may be because of a difference in the definition of the official unemployment rate. The paper relates that investment in Japan was, arguably, partly the cause of the real GDP growth in Japan of 5 percent per year form 1985 to 1990, versus 3 percent the first half of the decade; however, by early 1991, Japanese consumption and business investment had slowed, and residential investment declined.

Table of Contents
Introduction
Inflation
Unemployment
GDP
Consumption
Government Spending
Trade Deficit

From the Paper:

"In 1998, Japan was trying to avert a deflationary spiral and some economists wanted to create a mini-bubble of inflation to jumpstart a sluggish economy. That would have been done by increasing liquidity. They argued that the Bank of Japan (BOJ) needed to aggressively increase liquidity by printing money or by purchasing securities from the money market. In turn, this would push down interest rates, trigger demand for corporate capital investment, and encourage consumers to buy. Part of the reasoning behind this was that Japan was in a liquidity trap and money was not circulating, as it should; under those conditions, even extremely low interest rates did not encourage companies to borrow for investment because the return on their investments would be so low as well. In fact, the opposite behavior was keeping inflation low. Companies were holding large amounts of capital as a hedge against their expectation that the economy would worsen. That concept was also affecting consumers, of course. But consumers were also worried about a thinly stretched pension system and job security, or lack thereof."

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