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The Japanese economy.

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Introduction

THE JAPANESE ECONOMY Japan, the World's second-largest national economy and fundamentally strong, has been suffering from an economic and political malaise for a decade . This is mainly due to the persistent reluctance of political, bureaucratic and business leaders to make and implement policy reforms required bringing about renewed economic growth in a world of rapid technological change and competitive market forces. (www.gsb.columbia.edu/japan) What Went Wrong? (Following information is from www.brook.edu ) It was ten years ago since the asset-price bubble burst, but the Japanese economy is still struggling with its aftermath. In October 1998, the Nikkei average index was down to one-third its peak level recorded in late 1989. Prices of land for commercial and residential use have dropped 70 and 45% since 1991. As a result, most financial institutions were left holding very large volumes of bad debts, forcing them to take a much more cautious stance in extending new loans. A number of major financial institutions actually became insolvent in the second half of the 1990s, pushing the economy to the brink of a crisis. ...read more.

Middle

Since investment (as measured by gross capital formation) as a percentage of GDP was about the same (at about 30 percent) in both the 1980s and the 1990s, the decline in the growth rate in recent years can be attributed to a decline in investment efficiency. Investment efficiency in Japan is much lower than in the USA. Japanese companies, although highly successful at exporting, are increasingly shifting their production overseas, pushing unemployment up to post-war record levels of nearly 5%. This has led to a collapse of consumer confidence, as workers lack the same level of unemployment benefits available in the West. Japan has one of the world's highest saving rate, with up to 35% of household income going into private savings. But people get a very poor return on their money, as the Japanese central bank has kept interest rates near zero to help finance the government's huge borrowings.The slow deregulation of the financial sector has meant that relatively little of those savings are channelled into the stock market, compared to other developed countries. ...read more.

Conclusion

Just a few weeks back the goverment announced another set of measures . These included a move by the central bank to loosen monetary policy , some new ideas for tax and spending , and that a new entity will be set up to rehabilitate some borrowers once their loans have been taken off the banks books. The package is not expected to lead to any fiscal expansion or repair any broken banks. Unemployment is a big problem, going up to post-war levels. (Following information is from www.gsb.columbia.edu ) Despite all this, Japan's economy is not in crisis. It will not collapse. Rather, the issue is whether Japan will continue to slouch along , or whether its political leaders will get their act together. Indeed the sense of crisis is more political than economic. The Japanese public has become increasingly frustrated, and confidence in Japan's leadership has seriously eroded. Conclusion : Japan's economy faces a very uncertain near-term future, with politics dominating economics. Economic policy is on a very uncertain course. It is for the Japanese public to see if this government's reforms are efficient and if confidence is high, consumer spending should increase enough to jump-start the economy. Reference List 1) http://www.gsb.columbia.edu/japan/pdf/Annual%20Report%2001.pdf 2) http://news.bbc.co.uk/1/hi/business/2458319.stm 3) http://www.brook.edu/fp/cnaps/papers/2000_kwan_japan.htm ...read more.

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