The Bubble Economy of Japan

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  • Topic: Economy of Japan, Land value tax, Speculation
  • Pages : 13 (4851 words )
  • Download(s) : 174
  • Published : October 8, 1999
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The Bubble Economy of Japan

The Economy of Japan had experience a tremendous growth since the end of the Korean war. The growth of GNP in 1967 and 1968 was above 10 % (double digit growth period) which exceed countries such as Britain, France and Germany. The economy experienced a boost is due to many reasons, such as: enlargement of industrial facilities, massive adaptation of western technology and education, lower the military expense to 1% of GNP, relation with power nation, human resources and their spirit to achieve "zero defect program". But after the first and second oil crisis that occur from 1973 onward. The economy move downwards partially due to the poor management of economic policy. Although the government had attempt to adjust the economic policy but the recovery was slow. As the soaring of yen continues the demand for export has increase tremendously. With the concern of the United State of this problem, president Reagan and the G5 have signed an agreement with Japan called "Plaza Agreement" , the agreement stated that the exchange rate of Japan and Deutschmark can appreciate against the U.S. . Since then the yen value began to appreciate, Japan was going through a period of trade balance adjustment. While Japan is prepare to go through a period of trade balance adjustment, it will also suffer a period of recession, so the government strongly encourage business activities to strengthen the economy in order to prevent backwash effect. It was this event which boost up the GNP and raise the exchange rate. With this exchange rate advantage it stimulate business activity on housing and stock investment which created a bubble economy. During this period almost the entire country was involve in land speculation or other speculate activities. In this essay it will prove that land speculative activities had create many negative impacts to the Japanese society and economy. Firstly, it will describe the cause of land speculation. Secondly it will discuss on the society and political effects in Japan and lastly it will focus on the economy effects, more over it will include the aftermath when the bubble collapse.

The root of this bubble economy is due the wave of land speculation. The wide spread of land speculation activities were mainly because it is profitable. The speculative transactions in assets grew and grew and many believe that this will last for very long period of time. One of the reason that leads to massive investment in the risky activities is because of the success of the Japanese in the international market during 70*s - 80*s. Many Japanese enterprises and business man had become very wealthy. These people have a large sum of equity to invest. Some of these people have focus on risky asset such as stocks and land, therefore many of the regular ventures were left behind. One of the major cause of the massive transaction in the land market was due the incremental of loans by banks. Financial institution was very positive in lending money to the enterprise. This enhance the accessibility to the land speculate market. Each size of this loan is very large. This is because the size of mortgage in Japan financial institutions are based on the collateral, (house) while in North America the size of the mortgage is based on the borrower*s income stream. Therefore the size of loan can be obtain by borrower is larger in Japan than North America. Also 62% of Japanese households own the home that they live and in average the value is near 4 million yen. Therefore there are lots of potential investors. And during the period of speculative activities, borrowers increase the value of their loans as the value of their collateral increases. Since asset is highly liquidate, the number of potential speculators are high and borrowers in Japan were able to get a larger size loan on real estate therefore speculative activities sink into the level of common home owner and large enterprise. Beside the...
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