Japan Beyond the Bubble Case

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1.How did Japan perform until 1991? How do you explain this performance?

The stimulus of Japanese economic miracle was the sorrow and revenge of the Japanese after surrender in World War II that had severely affected Japanese way of living. Likewise, it pushed the Japanese together to work harder for economic reform. Japan experienced tremendous economic growth and becomes the second largest economy in the world in 1968[1]. There are several underlying mechanisms behind the success of economic and social recovery.

First, Japan was strategic and competitive in terms of trading. This includes the concept of Neo-mercantilist[2]; in other words, it encourages exports and discourages imports both physical goods and capital where it had advantage over America in terms of balance of trade. Another example is “Keiretsu”[3]- a grouping of enterprises with the same core business. This integration allows them to be more industrial efficient resulting in economies of scale.

Second, Japan’s labor force was growing in number as well as productivity. People worked long hours and were dedicated to the company because of permanent employment policies with attractive wage. They also placed importance on bank savings, which enable banks to give loans for further investments, creating more jobs and raising the standard of living for the Japanese.

Third is the appropriate change in economic reform and other policies by the government that improved the economy consistently and dealt with sudden unexpected circumstances like Nixon shocks and Oil shocks[4]. Even though oil shock incident may have worsened the economy and put pressure on the cost of production as the price of oil rose. However, this was temporary since Japan was able to come up with an alternative by producing high value added products, such as computers and electronic goods, instead. Other policies include reduction in tax and real interest rate, which helped stimulating the investments.

Forth, the cooperation of Japanese from both public and private sector that was eager for sustainable economic and social development. For instance, they believed in reducing labor-intensive work and increasing efficient production such that it maximized benefits and energy saving. This idea was not only implemented in manufacturing sites but also in workplaces, schools and individual households. This saved the nation a huge amount of money on energy[5].

Overall, until 1991, the economy and society of Japan quickly recovered after World War II and performed superiorly resulting from the efforts of Japanese people as a whole.

2. Why has Japan stagnated since 1991? Why does neither fiscal nor monetary policy seem to work? What is the role of the very institutions that seem to have facilitated the miracle?

This is because the Yen kept appreciating. The export sector became less competitive and complex regulations did not allow foreign goods to enter into Japan to counter this problem. In the past, the government paid little attention to market liberalization since it might harm the popularity of the party[6]. For instance, by letting foreign goods into the country, small business and local farmers found it harder to compete. As a result, the party may lose votes from these groups. In addition, Japanese themselves were used to Japanese goods and refused to adopt foreign-made goods. This notion also constituted to a stagnated economy.

In addition, the appreciation of yen speeded up investments as the economy was growing rapidly; however, some of them involved assets that were not used efficiently and the loans were given improperly from financial institutions. There were also numerous asset speculating activities that spurred the stock markets[7]. When the stock market plummeted, the projects stagnated and the business went bankrupt. They did not have money to repay the loan and many small businesses closed down and could not...
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