The economy of Japan is the world’s second largest developed country, the third largest by nominal GDP and the forth largest in terms of purchasing power parity. Japan relies on its comparative advantage in high-end technology, research and development to drive its economy. Since the end of World War II Japan’s economy has grown at a unseen rate, propelling it from that of a war torn empire to that of one of the most technologically advanced nations in the world. Unfortunately the meteoric growth that they experienced from the 1960’s to the 1990’s did not translate into the new millennium. In the post war years the Japanese government implemented stringent tariffs, which encouraged people to save. With more money in the banks, loans became far easier to obtain which lead to massive speculation in the Tokyo Stock Exchange and the property market. This lead to a massive collapse of the Stock and property market effectively wiping trillions of dollars from the Japanese economy in the early 1990’s. With such low interest rates, trillions in ineffective loans, the bottoming out of the Nikkei Index this lead to massive deflation and a stagnation of growth of the Japanese economy to the present day. There have been many unsuccessful attempts to rectify the economy but most of these were ineffectual at helping the economy in the 90’s and in the new millennium. Recently though with the election of Shinzo Abe as the leader of Japan he has implemented a new round of reforms, which could help Japan increase the overall health of the economy. His strategy follows “three arrows” of economic reform. 1: A dramatic expansion of the Bank of Japans balance sheet to increase inflation to 2% 2: A temporary fiscal stimulus program
3: Revised structural reforms in the labor market and corporate governance The first two arrows have seen to have some success with an increase in the economy of about 4% in the second half of 2013. But implementing these structural reforms could be more...
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