Japanese Bubble Economy Analysis

Account for the emergence of the ‘bubble economy’ in Japan and the reasons for the country’s slow recovery from it.

Abstract:

Shortly after the Second World War, the economy of Japan started to revive. Then, Japan had entered a period of high-speed development. However, with the bursting of bubble economy, Japan’s economy had experienced a great recession. This essay intends to make clear the emergence of the bubble economy and why Japan recovers so slowly.

Introduction:

Bubble economy is the…….

Before the bursting of bubble economy in Japan, more than half of the world's top ten commercial banks were the Japanese banks, such as Sumitomo, Fuji, Mitsui, Mitsubishi and Sakura. Japan was recognized as one of the richest countries, and the

As far as I am concerned, the beginning of bubble economy was much earlier than the time of Plaza Accord. Since the end of high-speed development of Japan’s manufactory industries, some of Japanese companies commence on finical investment, such as stock speculation. While the Japanese manufactory industry surpassed that of America, the growth speed became slower and slower. For the profit of companies, some businessmen sought for other ways to make money. For example, the president of Hanwa Corporation had made numerous money in the international financial market, owning to the zero growth of core business. Established in 1947, Hanwa Corporation had developed rapidly with the boom of the steel industry. However, the oil crisis and saturated demand of steel had affected by further development of the corporation. In order to maintain the profit, Hanwa Corporation started to participate in the financial activities. The success in the financial market had brought huge profit for Hanwa Corporation. It was quite easier to make money through speculation, and therefore many entrepreneurs and industrialists began to devote to the stock market and the real estate industry. The money should have been used to scale expansion and R&D, had been put into speculation, which was the beginning of the bubble

For the consideration of the credit risk, banks had gradually tended to finance the real estate industry, retail industry, and individual residential housing. It was because the land prices had kept rising after the end of the Secord World War. Influenced by the myth of "land will not be devalued", the land transactions for the purpose of resale and trade increased, and large sum of money flowed to the real estate industry. At that time, the total land price of Tokyo's 23 district reached the sum of all American lands. In this context, Japanese banks had made a large number of loans clients with land as a security. Besides, the rising land prices also made the accounting values of land owners’ assets increase, and stimulated the desire of consumption. It was obvious to see the growth of domestic demand, which further fueling the bubble of Japanese