Japan Lost Decade

Topics: Inflation, Recession, Monetary policy Pages: 2 (778 words) Published: February 15, 2011
Japan’s Lost Decade : An Introduction

Japan’s economy has endured the first lost decade during the 1990s. Looking at the current situation, experts are pointing out that Japan is now experiencing their second lost decade due to similar characteristics of the first which is stagnant, non-improving condition of their economy. Did Japan learn anything from the previous lost decade, or did the steps taken to avoid another lost decade were too weak? What was the problem? We will try to look into the situation of both crisis and highlight some major problems that contributed to this economic downturn. During 1990s the major opinion claimed that the recession was caused by the crash of aggregate demand associated with land and stock price. The government took a series of stimulating economy by adding public demand to private one, and piling up public projects. However the demand-driven policy failed to help the economy to fully recover from the bottom. Then an alternative view took dominance in the 21st century. The new view claimed that it was productivity slowdown that made Japanese economy to stagnate so long. Right after the crash of the bubble economy, the dominating view on the recession was that it was caused by insufficient demand, associated with the crash of land and stock prices. Economist Miyazaki called this “Complex Recession”, and his view was widely accepted in early 1990s. Keizo Obuchi, Japan’s Prime Minister at the time, changed economic policy and increases public demands. Thanks to Information Technology Bubble, Japanese economy recovered in 1999. However, the bubble crashed and Obuchi died in illness in 2000, and Junichiro Koizumi took over the Prime Minister’s seat. Koizumi’s policy focuses on the supply side of the economy, viewing the persistence of low productivity firms as the main cause of the country’s economic slump. But the economy became even worse, thanks to demand fall associated with the 9/11 terrorist attack. The economic crisis...

References: 1. Hoshi, T. & Kashyap, A. K. (2004). Japan 's financial crisis and economic stagnation. Journal of Economic Perspectives, 18(1), 3-26
2. Moss, D. (2010). Understanding Japan’s economic stagnation : Beyond two lost decades. Retrieved from http://www.nsam.or.jp/images/report/pdf/report_10-2_201008_english.pdf
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