Japan's Economic History in the Last Forty Years

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In the 1970s Japan had one of the world’s most-admired economies. Economists believed it would achieve the highest living standards and continue to develop the best technologies. At that time, Japan boosted he world’s second largest gross national product and eventually reached number one by the late 1980s However, everything changed in the early 1990s, and Japan entered what has been described as its first lost decade (Kuepper, n.d.). Economists and historians have studied the causes for Japan’s stagnation over the past twenty years, but there are significantly different opinions regarding the issue. Most agree that the huge asset ‘bubble’ was the cause for the initial stagnation, but they disagree as to the reasons for why this persists. Some are of the opinion that the domestic sector’s lack of dynamism and an aging population are to blame because they hinder domestic spending (Samuelson, 2010). Other economists, such as Paul Krugman, believe that consumers and companies’ excessive savings are the root causes (Kuepper, n.d.). Very low interest rates drove stock market and real estate speculation in the 1980s. All the speculation during the boom cycle caused the beginning of the crisis. Property and public company valuations tripled during the period, and land in Tokyo became extremely expensive (Kuepper, n.d.). The asset price bubble burst in 1992 and, in the beginning, it was just a decline following the stock market crash (Posen, 1998). However, the economy has not recovered since. Shortly after the 1992 crash, stocks had dropped 57 percent when compared to the 1989 level. Banks had problems; some even became insolvent, because they had lent on the collateral of inflated land values. The economy continued growing at a ... ... middle of paper ... ...mic Stagnation? Aei-Ideas.org. Retrieved February 2, 2014 from: http://www.aei-ideas.org/2013/11/baby-bust-will-china-avoid-japans-economic-stagnation/ Posen, S. A. (1998). Some Background Q&A on Japanese Economic Stagnation. Peterson Institute for International Economics. Retrieved February 9, 2014, from: http://www.iie.com/publications/testimony/testimony.cfm?ResearchID=317 Samuelson, R. J. (2010). How to Avoid Japan’s Mistakes. Washington Post. Retrieved January 5, 2014, from http://www.washingtonpost.com/wp-dyn/content/article/2010/11/14/AR2010111403886.html Whitley, S. (2013). How Abenomics Benefits Japanese Companies. Financial Times.com. Retrieved February 9, 2014 from Financial Times Xu, B. (2013). Abenomics and the Japanese Economy. Council on Foreign Relations.org. Retrieved February 2, 2014 from: http://www.cfr.org/japan/abenomics-japanese-economy/p30383

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