Macroeconomics Of Japan Essay Example for Free

Macroeconomics Of Japan EssayJapan is the greatest thriftiness in Asia, in terms of GDP, as well as human resources and technology. The nation was once predicted to be the next superpower nation exceeding the United Sates and countries of the European Union. Today, it is the worlds third-largest parsimony subsequently the United States and Peoples Republic of China. It is also the second-largest economy by real GDP and market exchange marks. The economy is highly efficient and competitive especially in the services industry, which is originated from a acceptable cooperation between the government and the industry, a strong work ethic and the mastery of high technology. Recent compendium however, revealed that the economy is currently under serious problems. Observers and even Japans own officials have admitted that the economy is no longish first class. There are even worries that Japan has no longer sustain the capacity to be i of the worlds greatest economies anymore, a nd the economy will lento degrade into one of the typical Asian economies. Analysts stated that such an occurrence has happened before, when Argentina which were once considered one of the strongest economies in the world degraded into typical third world economies today.Is this the case with Japan? In this theme I am discussing the problems that stayed within Japans economy and elaborating their probable causes. Afterwards, I will figure out the macroeconomic policies which have been performed by the Japanese government in response to these issues and how these policies have affected the economy. The pointedness of discussion is 1997 -2007, which are the years after the Japan economic bubble bursts, to the present day. II. Japan scotch Issues 1997-2007 II. 1. Background of the Issues Japan Economic BubbleJapanese growth rates have been nothing little than spectacular for decades. In the 60s the average real economic growth rate was 10%, in the 70s it was 5% and in the 80s it was 4%. Japanese monetary system however, was based on a bureaucratic fiat. The government believes that by dissipateing sufficient amount of keen into the market, the economy will experience a rapid rate of growth. Thus, the financial system was set to inject cheap capital into the business sector (Hamada, 2004). In support of this policy, banks even reluctant to report in bad loans.In short, companies were encouraged to borrow and expand continuously. Companies would then borrow using assets uniform field and then invest the money into the stock market. After the market rises, the company would have latent gain which will be used to buy more land and therefore, the cycle continues. These cycles were the origins of the huge real the three estates and stock market bubbles. These bubbles however, cannot be sustained forever, and when the Bank of Japan (BOJ) raised interests rates, the bubble bursts in 1989 and go forth commercial banks in Japan with a mountain of bad loans.I I. 2. Stagnant Economic Growth Afterwards, assets prices began to reduction rapidly. Japans economy was going through a long period of deflation since then, partly caused by the appreciation of yen. Because of this appreciation, the CPI increase rate dropped into negative in 1995. The expanding deflation caused Japans economy to tarry in a static condition. Moreover, the deepening deflation was accompanied with weakening state of real economy like growth rates declines and increased unemployment rates. Between 1992 and 1994, real growth rates are below 1%.It even dropped toward a negative range in 1998. Jobless rate have also suffered a rise of 3. 4 % from 2 % in 1990 to 5. 4% in 2003. The economic downsizing in 1997 range Japanese economy into a new state of deflation (Oliver, 2002). II. 3. Deflationary Trap It was not considered serious until the largeness rate slipped to below zero in 1997. In this phase, observers believed that Japan was in a deflationary nail down. However , because of various long-term considerations, the government has implemented policies to maintain inflation stable near the zero mark.In this situation however, the central bank cannot use its traditional instruments to deal with the issue. As a result, deflation deepens even only and the market intensified expectations toward further and longer period of deflation. Due to the increase in real rate of interest, consumer spending and corporate investments were discouraged. Unfortunately, the shrinking total demand in the macro economy further decline the deflation. If not dealt with accordingly, this could lead into self-sustaining deflationary process (Campbell, 1992).