Japan's+Bubble

=Japan's Bubble Economy =

Time Period of the Bubble Japan’s bubble economy began in 1985 and ended in 1992. The crash of the [|Tokyo Stock Exchange]in 1990-1992 and the housing market crash in 1991 caused the abrupt end of the bubble economy.

The Bubble's Cause and the Bursting of the Bubble In the early 1980s, Japan enjoyed great financial success due to their trade surpluses from exporting to the western world. When their success began to threaten western economies’ job markets, Japan agreed to revalue the [|yen] at the [|1985 Plaza Accord]. At the same time, they also lowered interest rates to stimulate their own domestic economy and focus more on self-sufficiency. Excess land and real estate for sale was abundant, and due to the easy [|liquidity] individual citizens and businesses alike had access to the housing craze. Eventually, people bid up the rate of domestic housing so much that it’s housing market was valued at four times its exports. Regular goods like textiles and services like transportation were being sold at 100 PE. Eventually, the [|Bank of Japan]started raising interest rates and tightening up laws to keep the money in the banks to help fix Japan, who had overextended herself on an overseas buying binge. The Japanese government finally took responsibility for all of the bad loans and assumed the debt, causing a huge strain on the Japanese people that spiraled into the crashing of the Tokyo Stock Exchange.

Life in Japan During the Bubble During the time of the bubble, the wealthy in Japan enjoyed their monetary surplus and treated the housing market like a game. For example, the land on which the [|Imperial Palace in Tokyo] was built was estimated to be worth as much as the state of California during the time of the bubble. Citizens faced huge financial strain, paying up to $300,000 for one square meter of good land. Even though the country had such a monetary surplus, none of the wealth made its way down to the regular people. Many people were forced to take out multigenerational loans to afford housing. Loans weren’t difficult for people to obtain, but they often bound the people for life and kept them dependent on the government.

Events After the Bubble After the price bubble collapsed, Japan experienced the time period called the[| Lost Decade]: a period of economic slowdown. In the two years after the crash, there was a 60 percent drop in [|asset prices]. Large corporations tried to downsize, but many banks and financial institutions were still dealing with huge amounts of bad loans from the boom period. Confidence from other countries in Japan’s economy decreased. Blame was placed on the MOF ([|Ministry of Finance]) because they did little during the crisis despite domestic and foreign demands for economic deregulations and greater market freedom. During the 1990’s, the [|National Diet of Japan], composed of Japan’s [|House of Representatives]and [|House of Councillors], passed a series of bills intended to initiate economic recovery, but a decade of massive stimulus packages and emergency measures still failed to stimulate Japan’s dull economy.

The Role of Credit In the beginning of Japan's Economic Bubble, it was a time of super easy[| credit]because corporations and individuals were borrowing money to buy real estate and banks were abundantly lending that money. Everyone was investing since [|interest rates]were extremely low. With Japan running large trade surpluses, the yen appreciated against foreign currency. To offset the negative impact of the stronger yen on the economy, Japan eased interest rates and increased government spending. Due to the decisions, real estate and stock prices soared.

The Role of the Government Pre and Post Bubble  After the the[| oil crisis of 1973] where inflation soared 20%, the Japanese government reacted by adopting conservative policies in order to control the rising inflation rate.This move was beneficial however ,after the banking crisis [|Japan’s Ministry of Finance] bent under political pressure. When the Ministry of Finance was accused of incompetence, they unfortunately responded by opening up the central bank for possible reform. the government began to deregulate financial markets relaxing earlier requirements making it possible for banks to pursue new customers and offer loans more freely. Following this, Japan changed their approach to [|monetary policy],and allowed the money supply to increase and interest rates to fall. These two actions are intrinsic to the formation of a [|speculative bubble]: and with newly lowered interest rates and greater access to credit, new players began to enter the financial markets.They reversed the previous stringent policies and instead of removing or limiting the control of politicians (as other countries were doing) they eliminated the distance between the power and will of the politicians and the central bank, putting the economy at the mercy of the politicians.

After the crash, the actions of the Japanese government only served to dig the country into a deeper hole. According to Michael M. Hutchinson, “Japan's system of limited foreign access, unwritten regulations, and discretionary decision making has not allowed it to keep up with the demands of the [|world economy].” The government policies spell out the downfall of [|Japan’s economy]. The state of Japan is so dire that even Japanese corporations have given up on their country and go abroad for financing. Japan needs to take drastic steps to modernize and update its policies as other countries have. The Japanese government will need to change in order to adapt, survive and thrive in the global economy.

Qualities Unique to Japan's Bubble This particular[| bubble] was different because the Japanese thought that the bubble/expansion period wasn’t going to end. They were in a state of euphoria and were naive about any consequences. As an Economist article states: “What should be noted regarding Japan’s experience is that the enthusiasm of market participants, together with the inconsistent projection of fundamentals, contributed to a large degree to maintaining temporarily high [|asset prices] at that time.” This optimism lasted for a long period of time before slowly dissipating as the Japanese government started to see the situation.

<span style="color: #008080; font-family: Georgia,serif; font-size: 27px;">Precautions That Need to be Taken for Recovery ====<span style="background-color: transparent; color: #000000; font-family: Arial; font-size: 15px; text-decoration: none; vertical-align: baseline;">As of now, Japan has not taken all the necessary steps to fully recover from this catastrophic event. The bursting of the bubble cannot be attributed to a singular facet of Japan's government or economy but rather Japan must reinvent the entire system to rival their pre-crash prosperity. One crucial step involves breaking apart the [|Iron Triangle.] The Iron Triangle (pictured below) signifies a dangerous interdependence between business, [|bureaucracy] and government.====

=**Bureaucracy**= =**Business Government**=

<span style="background-color: transparent; color: #000000; font-family: Arial; font-size: 15px; text-decoration: none; vertical-align: baseline;">Director of the Asia and Pacific Department of the[| IMF], Usuke Horiguchi has many ideas for steps Japan must take. He believes there needs to be changes to the areas of "Structure of [|Keiretsu] cross-ownership, corporate code (or lack thereof) and reporting requirements, accounting standards, monitoring bodies and punishment for violators. Japan has not made all the necessarily changes to completely right the economy but if these de finite <span style="background-color: transparent; color: #000000; font-family: Arial; font-size: 15px; text-decoration: none; vertical-align: baseline;">steps are taken hopefully they can achieve progress.