Analysis of Japan Bubble Economy

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(1)Abstract: Japan suffered the burst of bubble economy in the nineteen nineties, which the economy went down sharply. Japan even had not got rid of influences of the bubble economy for after ten years. The formation of Japan’s bubble economy has the inseparable relationship with the appreciation of yen, liberalization of finance, and the excess of capital. Today China’s economy might repeat what Japan’s economy experienced, such as calls for the appreciation of RMB, inflation rate goes higher, and hot money inflows. So reviewing the causes of Japan’s bubble economy is meaningful for maintaining the stable development of China’s economy. Key words: Japan, bubble economy, causes, China

From mid 80s to 90s, Japan’s economy appeared many very strange phenomena, which were unprecedented. The price of assets, such as stock and land property, experienced a very higher level, but the price of the commodities and services was more stable. We call this phenomenon “asset-price inflation”.[1] When the high prices of assets cannot be explained, it means that the economy appears bubble. In 1990s, with the sharp falling of the stock and land property price, Japan’s bubble economy caused the collapse of the Japanese economy for more than 10 years. Japan’s bubble economy produced many reference meanings for other countries. By analyzing the causes and effects of Japan’s bubble economy, this essay will provide more information for China to face the future economy’s challenges. (1) The signals of bubble economy

a. The asset-price was unusual
The price of stock was much fluctuated, which was a typical pheromone of bubble economy. From 1985 to 1989, Japan's stock values jumped up from 169 trillion yen to 527 trillion yen, which the average annual growth rate was 27.5%, but, in 1985, Japan's GDP was 324 trillion yen, and, in 1989, Japan's GDP was 403 trillion yen, so we can calculate that the average annual growth rate was 5%. During the same period, the growth rate of stock was much higher than the growth rate of GDP.[2] (See Table 1) Additionally, by analyzing the Japan's economic indicators from 1980 to 1990, Japan's growth rate of real GDP was 56.4%. Industry manufacturing production growth rate was 63.4%. Enterprise profit growth rate was 62.9%, but at the same period, the growth rate of average stock price was 459.4%. The growth rate of average stock price was 7.3 times higher than the growth rate of enterprise profit, which means that 86.3% of the growth rate of average stock price was virtual rise. It proves that Japan's economy has a high proportion of bubble.[3] Table 1 GDP, Stock and Real Estate Values (trillion yen) |Year |GDP |Stock |Real Estate | |1985 |324 |169 |176 | |1986 |338 |230 |280 | |1987 |354 |301 |449 | |1988 |377 |394 |529 | |1989 |403 |527 |521 | |1990 |434 |478 |517 | |1991 |457 |373 |504 | |1992 |484 |297 |428 | | | |...
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