Japan Faced Great Recession with Fluctuation in GDP Rate – Deep Analysis
Japan is a small country in Asia. However, the devastating side effect of Second World War on Japanese people is still inexplicably severe as two cities were blown in ashes with the air drop of nuclear bombs. People in Hiroshima and Nagasaki suffer from incurable skin diseases, infection and physical deformities. However, this Asian nation has recovered from debris. Gradually, it has become one of the best competitors to manufacture electronic goods and sophisticated gadgets to overtake advanced countries in Europe. Japanis wellknown forfirstsunrise , soundeconomic infrastructure, upgraded technology andtalentedmanpower to defy the rest of theworld. After the collapse of USSR, many economists recommend Japanese economic model to follow to check the recession. Even America was believed to be emulating Japanese theories to regulate the financial sectors. However, the prediction made bysuperiorsin pastdidn’ttakethe realistic shapewhenJapanese economy experienced theasset bubble collapsestarting from1991to 2010. So, Japanese economy needs to be reset through modification
Lost Decade Damages Japanese Economy
In 1991, Japanese financial sectors including national banks started distributing attractive loans to boost up people. This window guidance was helpful to budding local traders to fuel up sick cottage industry. Unemployed youths got chance to borrow fund at low interests. However, this new money lending policy became a boomerang to hurl back to damage the financial growth of Japan.
During the asset bubble collapse, the banks of Japan brought new changes with resolutions to prevent the backlashes of over inflation. Banks took safeguards by increasing the interest rates to compensate. It would give the banks privileges to overtake the economic downturn or recession. However, the financial crunch seemed to be widened forcing this country to cut over expenses and borrow cash from foreign countries.
Economic breakdown was also found in stock market as well. Insurance companies and stock/share market had to have piles of debt with bad credit reports. During lost decade or crash in Japanese economy, many Zombie companies were aided by banks to survive from the collapse or recession.
These Zombie companies have zero credit score. However, the ability of zombie firms to pay back interests only was thought to be helpful to banks to collect some fund. This new money lending system to energize the sick industry was of little value in reality. Japanese financers were not ready to fuel up these zombie companies with their currencies. Therefore, Japan had to change the mindset and stopped this new scheme to aid zombie companies. The asset bubble was exploded to make the country financially backward.
Japan Opts for Crony Capitalism
In 1980, Japanese economists chose the invidious consumption to spend their national currencies to buy luxurious goods.
This conspicuous consumption theory was indeed chosen by the government to recover the prestige in public. It must be a wealthy country with lot of sophisticated goods and luxuries to make other nations feel jealous. This theory didn’t last. The debt acceleration took place as people had the least ability to pay off old debt. Sick companies had to shut down production units. Even Sony and Toyota were in peril during the bubble collapse or lost decades.
Economic strength of Japan reduced. After a hiatus of 12 years, GDP growth started in Japan slowly. Japanesegovernment renewedthe strategies by optingforsome risk managementplans toinspiresmall scale industries tostandresilient. The financial stimulus was launched by Japan and small companies as well as local traders got support from Japanese banks to go-ahead with new expectation.
The Paul Krugman, the greateconomist, admitted that in 1991 onwards, there was apalpableliquidity trapin whichthe governmentisnot able toreduce thenominalinterest rate as it is already at zero.
So this situation was not favorable to financiers to invest money in land and stock market. The government expected the formation of Crony capitalism to prioritize the self interest of investors, businessmen and government officials to sanction loan.
Through mutual understanding, bank loans were approved to spoon feed self seeking companies which needed sufficient cash to fight with crunch. Krugman described the Crony capitalism clearly by stating that the loan approving standard was reduced to unprofessional level without assessing the quality and financial strength of borrowers. Therefore, banks had to have setback with the least capability to recover money lent to borrowers. This financial loss lengthened up the period of recession in Japan for over decade.
New Stimulus for Japanese Entrepreneurs with Least Productivity
The trading mobility and business expansion experienced downtime in 1992 and 1993. It is called benign bubble burst. In 1997 to ’98, Japan underwent the financial crisis in the banking sectors and unprecedented hike in taxation. However, the economic development was taking place surreptitiously. This development had also short life expectancy.
The recovery process was not very good but it enabled the Japanese higher authority to have energy to launch more profitable strategies to strengthen up the national economy. In the year of 1996, the growth of Japan was pegged at around 3.5 percent. Japanese exporters got new stimulus to cope with G7 nations.
The condition of yens in Japanese exporting and trading market was comparatively good. However, in 1997, the depreciation began with the increase in consumption taxes from 3 to 5 percent. This small increase held the economy of the country in turmoil. The recession was unexpected but it restored.
Hokkaido Takushoku banking sector had the credit crunch to lose stamina. The recovery from recession was nipped in the bud. In 2014, gross domestic product was 4601.46 billion in USD. GDP appreciation value of Japan covers 7.42 percent of the global economy. In 2012, this GDP growth was 5954.48 USD Billion in American dollars.
South Korea and Japan Have Similar Economic Structures
South Korea and Japan have more or less similar economic infrastructures. However, the population in Japan is three times higher than that of South Korea. In addition, the workforce, and labor efficiency of Japan are appreciably greater. For capita GDP rate in Japan is $37K and $35K in South Korea. In consumer electronics and auto industry, South Korea and Japan are almost running neck to neck with higher competition. However, if North and South Koreas are united to develop the economy, overnight there will be a 50 percent growth to send the Japan to the back bench.
Beijing and Tokyo – Competing to Have Better Economy
Beijing and Tokyo are rivals to have the same targets to become the largest economic powerhouse in the world. In 2015, the overall GDP growth of China is $9 trillion whereas Japan experienced $5 trillion GDP to become the third largest economic infrastructure succeeding US and China. Beijing is prioritizing the service and domestic consumption industry to balance the economy. There was a significant growth by 7.4 percent in the first quarter of every year. In Japan, the condition of supermarket was down with worsening business development in 2013.
Natural calamities, bomb explosion and political tension are hindering the growth of Japanese economy. If the cold war takes a new shape to put Beijing and Tokyo in trouble, South Korea will be a gainer in between.
Side Effect of Recession in Japan on US
The consecutive four episodes of financial recession in Japan will affect American market to a great extent.
In an interview, Gary Schlossberg, an erudite senior economist at Wells Capital Management, has given his statement after doing marketing analysis.
According to this erudite economist, the bubble asset explosion in Japan will nudge the fragile economic infrastructure of the world. US will not be out of such negative impact. Japan is the largest source of direct investment in Los Angeles County. So, this financial downtime will not be favorable to US as it exports many foreign goods including electronic gadgets and machineries to Japan.
So the American exporting industry will have to suffer from the loss due to the crisis in Tokyo. Jerry Nickelsburg, a renowned economist, also predicts the side effect of Japanese recession to weaken the products exporting industry in America. Japan is a big partner to reinforce the American economic infrastructure.
Total trading assets passing through California has received 11 percent drop with 1 percent at the Port of Los Angeles. However, Stephen Levy who is the director of Center for Continuing Study of California based in Palo Alto thinks differently. He is not worried about the sudden recession in Japan. America is managing the self-dependency on Japan slowly but very steadily.
Comparing to 1990, this year, USis becominga strongexporter tocapture theEuropeanmarketby trading excellently with the less dependency onJapan.
Finally, after lost decade, Japan is not feeling well till now. There must be new policies to check inflation and skyrocket the GDP rate with good credit scores.
Shinzo Abe, the prime minister of Japan, formulated the Abenomics theory to reconstruct the economy. The reforms will be in financial sectors for faster development. However, the unprecedented rise in the sales tax must be hindrance to Japanese government to produce a healthy economy for people.