The world over, countries look forward and tirelessly work toward improving their economies. A growth in the economy signifies an improvement in the standards of living improved gross domestic product (GDP). In the last three decades, the Middle East has generally experienced tremendous growth in their GDP and with specific emphasis to Japan and China which have grown to be global economic powerhouses (Otsuka, 2011). However, a down spiral has been experienced as regards to the rate of economic growth in the past two decades as a result of economic stagnation experienced by Japan since the burst of the asset price bubble in 1992. In as much as Japan is among the top perfuming economies globally in comparison to United States of America, its economy has continued to oscillate at the same point for almost two decades. The economy has dwindled from 18% to 10% in 1994 (Otsuka, 2011). This has created turmoil in the social fabric of the country with a growing disparity between the rich and the poor. Japan’s economy can candidly be said to have fallen and its recovery will take time. Some of the underlying factors that have perpetuated the stagnation include aspects such as; appreciation of the yen relative to the dollar, policy management by the authorities, savings in surplus and structural impediments among others. This paper thus seeks to establish the causal effects of the economic stagnation in Japan, the lessons that can be learnt by other nations and precautionary measures they can institute to avert such an economic spiral.
In the early 80’s Japan was seen as an emerging economic powerhouse. However, this has significantly changed because of the failure to revive back the Japanese economy. One of the greatest causes of the stagnation is the surplus in savings. The increased savings by the population and a big reduction in consumption propelled high speed growth. The Japanese were somehow pessimistic about the future (Hill, 2012). The money saved was used to improve the infrastructure but it later turned out the savings were an impediment that brought about a severe backtrack that has seen the economy fail to revive despite the many government policy interventions (Tsutsui, 2009).
Another cause is the unprecedented appreciation in the value of the Yen in relation to the American dollar. A factor such as the rate of inflation has greatly hindered the effectiveness and consequently the efficiency of certain policy tools which might have turned around Japan’s financial mess e.g. formulating monetary policies that that just tackle specific inflationary elements would prove a difficult task because a certain sharp devaluation of its currency would put other bordering nations such as South Korea and Taiwan under undue pressure to also devalue theirs (Garside, 2012).
Structural impediments also play a great part in the stagnation of Japan’s economy. Japan operates under some complex political structure. This complex political economy has further escalated the economic woes that are experienced by Japan with specific interest to the bureaucratic ties in the country between economic segments such as banks and insurance companies. These impediments keep off the general public who are entrepreneurs who form an integral part if the economy is to be revamped again.
Another causal factor is the policy management system employed by the Japanese government. The poor policies implemented have made the stock market to crash and losing its credibility thereafter. The banking sector in Japan for a long time has been giving out high risk loans even when their net worth is below the acceptable standards. This is coupled by Japan’s protection of failing banks that were overstating the value of their assets (Tadokoro, 2011). The result thereof being that prices of property fell and banks were left in huge debts. These ineffective leadership skills have hampered efforts to stimulate the economy and make it vibrant once more though it cannot be solely be blamed but can be accurately be reaffirmed that poor policy management has aggravated the problem and consequently prolonged the economic recovery process.
The economic spiral that has grappled Japan for the last 20 years is a source of a great lesson that other nations can learn from. Countries should have precautionary measures to stimulate economic growth whenever stagnation in the economy is almost imminent. Nations can learn to avoid at all costs risky lending policies which can lead to bad debts. To avoid a negative cycle in the economy, banks should avoid pegging their lending to the amount of savings done. In the case of Japan, many people saved because they were uncertain of the future. Others did their savings pegged on the fact that their savings would purchase more in the future.
Another lesson that can be of significance is that the financial sector of an economy i.e. banking industry should not overvalue assets. This is achieved where banks state unreal prices for properties in order to achieve their ulterior motives in the economy. This corporate vice nevertheless can be curbed, at least partially, through having a strong economic oversight structure and panel (Otsuka, 2011). The government through its various fiscal and monetary monitoring segments should always have a rapid response to any major economic shakeups. It is through government intervention that right policies and channels can be tailored to an economy so as to avert redundancy which is catastrophic in the long run. Any economic decline has to be tamed before it poses serious economic threats.
There should be a clear understanding and control of the demographic factors when a government is implementing its fiscal and monetary policy into an economy. The problem has to be understood well and correct measures taken to clear the impending economic issues (Garside, 2012). Further to that, the demographic aspect of a country is a major factor in the formulation process of a country’s economic policies.
Japan’s economic stagnation however can be revamped. This can be achieved by bringing on board economic policies that stimulate growth of the economy once again. Such a policy can be an encouragement campaign to and support thereof innovations law on property rights. This is an inducement that is likely to encourage development of new technology among other things which generate income. As a result, the economy would slowly be revamped. Another aspect that can be employed is the rejuvenation and support for entrepreneurial activities, introduction of tax breaks and also grants. The government can also assist in the reopening of previously closed businesses by giving them cheap funds. This would inject new life into many small businesses in Japan and by extension create an economic stimulus.
The economic stagnation experienced by Japan has its own implications that vary from the benefits accrued; the costs incurred and risks exposure in doing business with Japan. First and foremost, Japan remains to be the third largest economy in the continent. It is therefore a fact that she cannot be brushed away simply because of an economic stagnation. The country enjoys an open economy and therefore has a lot of opportunities to be economically exploited (Otsuka, 2011). Japan still harnesses a great potential to grow its economy buoyed by the resources at her disposal. A free market economy ensures that she actively engages in international trade. This is a platform that can change her fortunes if right policies are put in place and well implemented.
Japan being amongst the world’s most developed countries, she has adequate infrastructure and supporting businesses. The availability of infrastructure acts as a boost to the revamping of the economy as various factors of production can be put into proper economic use. In terms of the risk involved, there is the potentiality of mismanagement of the economy by the authorities. This causes uncertainties by consumers of their future wealth and also high levels of debt.
In conclusion, it can be asserted that Japan has undergone a harsh economic stagnation period. Nevertheless, she has higher income rate owing to the fact that she is still an economic powerhouse. Despite their stagnant economy, Japan still has an advanced level in terms of human development that is a key factor in creating an economic stimulus. Japan also enjoys an economic freedom which is attributable to her open market policy. Despite India having a robust growth in her economy, international businesses are better placed to channel their investment in Japan for the same reasons highlighted above.
References
Garside. W.R. (2012). Japan’s Great Stagnation; Forging Ahead Falling Behind: Glos. Edward Elgar publishing limited.
Hill. C. (2012). International business, 9th edition. New York: SAGE
Otsuka, K., Hamada, K., Togo, K & Ranis, G. (2011). Miraculous Growth and Stagnation of Post- War Japan. Oxon: Routledge
Tadokoro, M., Soeya, Y & Velch, D. (2011). Japan a ‘Normal Country’; a Nation in Search of its Place in the World. Toronto: University of Toronto press.
Tsustui, M. (2009). A companion to Japanese History. West Sussex: Blackwell publishing limited.
