Japanese Economic Decline Of The 1990's

1 Pages 347 Words

The Japanese economic decline of the 1990’s can be attributed to several things: poor growth performance, serious fiscal problems, weak labor market conditions, weakening of the trade and external accounts of the country, and excessively loose stance of macroeconomic policies.

Poor growth performance:
The Japanese GDP growth in early 1990’s was almost zero implying no new money in the economy and an inevitable recession.

Serious fiscal problems:
Large and growing public debt to GDP ratio, in 1992 it was 63% and rose to 89% by 1996. Debt ratio as a percent of GDP being this high isn’t helpful to the economy because it implies that people are spending above their means.

Weak labor market conditions:
Stagnating employment growth and serious employment uncertainty along with a high unemployment rate by Japanese standards was a major part in the trend towards a stagnant economy and a recession.

Weakening of the trade and external accounts of the country:
Lowering trade surplus meaning that the country had a larger amount of imports and a strong devaluation of the Yen. Devaluating of the Yen is catastrophic because the cost of imports is higher while the revenue from exports is lower in nominal terms. This causes a society in general to tighten their purse strings.

Excessively loose stance of macroeconomic policies:
Very loose monetary policy to stimulate recovery and save the collapsing banking system and the nominal interest rate was close to zero. Along with the allowance of the weakening Yen were some of the major factors of the decline of the Japanese economy. Fiscal policy was very meager and did not invoke the boom necessary to jumpstart the economy.

In conclusion, Japan’s economic crisis of the 1990’s was directly related to poor management of the economy and an obvious disregard of a necessity to change with the times. An overly traditional government’s refusal to acknowledge warning si...