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Japan’s Long Stagnation, Deflation, and Abenomics: Mechanisms and Lessons
This book examines the struggles of the Japanese economy over the last 30 years, analyzing in detail the formation of the huge economic bubble in the 1980s, its collapse at the beginning of the 1990s, and subsequent two decade long economic stagnation and chronic deflation, with the aim of identifying the mechanism of such processes and drawing lessons for future economic policy management. The book also assesses the comprehensive policy efforts called “Abenomics” under the current Abe administration. As Abe continues into a new term, this book will be of interest to Japan scholars, economists, and policymakers around the world, particularly in Asia.
- GenresJapan
391 pages, Hardcover
Published February 22, 2019
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February 14, 2023
- (A really good overview of Japanese finance/economics beginning the post bubble era)
- The bubble popping often contributed with the Bank of Japan (BoJ) raising discount rate by 0.75% from 2.5% to 3.25% in May 1989. In one year and 3 months, BoJ continued the hike till the rate became 6.0%. BoJ was deliberate that such hike was meant to cool the rising land price
- BoJ dropped its interest rate merely 10 months later, from July 1991, to 1.75% in September 1993 eventually dropping to 0.5% (essentially nothing)
- As the rate rise, the transaction volume in stock market started to decline, then began collapse
- Land price already peaked in 1987, stabilized, then began to fall steadily beginning in 1990
- Unemployment rate increase after the popping of the bubble, rising over 5%, then remain steadily around 4%
- Author argues that for the outsiders, they often lump all the declining decade as a single "lost decades", author argues that such view isn't valid because each stage of lost decade are different from another
- Post bubble era, private investment decline whereas government spending as well as consumer spending did not
- "Implementation of investment tends to have a lag, the peak of investment comes later than the peak of economic cycle"
- Post bubble era, Japanese firms were saddled with debt from land purchases of extreme high values. It took the Japanese society really long time to realize the bubble era is coming to end, and it took firms very long time to begin unwinding of such overvalued assets
- In a typical market, firms saddled with debt would have to quickly exit either through bankruptcy or cooking its own books (which in the typical market, would often get shorted by targeted funds). However, in Japan neither happened (which speaks a lot about how Asian countries function), instead:
- Japanese firms held those quickly devaling asset in its book (because most of them believed land value decline in Japan would always be temporarily because "this time is different" or "Japan is different") while more and more firms collapsed. Banking crisis, which should've happened within months, didn't happen in Japan for 7 full years
- The way things were held was simple, banking system know the underlying asset of their clients are not worth much, thuse they began allowing payment deferrals or lower of their interest rates (thus marking then no longer as non-performing-loans (NPL). However, after 7 full years of subsidy through the banking system, credit crunch began and Ministry of Finance (MoF) had to bail those banks out as more Japanese banks became insolvent
- The way Japan is solving (or rather, not solving) its problem is such: MoF would often nationalize banks, or use other legal ways to prop out those banks to allow so-called "Zombie" companies to survive by deferral of their loan obligations. However, just because interest is deferred doesn't mean the loan is forgiven: those zombie companies still on paper have to pay for those assets
- In essence, Japanese taxpayers are subsidizing merely the interest rate difference for those overvalued assets. It's an open secret of sorts that Japanese banking system are insolvent, and probably has been for decades (ironically, as of writing, I also know Chinese banking system is insolvent - but recently, unlike Japan for decades - yet the Westerners don't know that, whereas the Chinese with the norm of Confucius thinking don't think it's an issue)
- The bubble popping often contributed with the Bank of Japan (BoJ) raising discount rate by 0.75% from 2.5% to 3.25% in May 1989. In one year and 3 months, BoJ continued the hike till the rate became 6.0%. BoJ was deliberate that such hike was meant to cool the rising land price
- BoJ dropped its interest rate merely 10 months later, from July 1991, to 1.75% in September 1993 eventually dropping to 0.5% (essentially nothing)
- As the rate rise, the transaction volume in stock market started to decline, then began collapse
- Land price already peaked in 1987, stabilized, then began to fall steadily beginning in 1990
- Unemployment rate increase after the popping of the bubble, rising over 5%, then remain steadily around 4%
- Author argues that for the outsiders, they often lump all the declining decade as a single "lost decades", author argues that such view isn't valid because each stage of lost decade are different from another
- Post bubble era, private investment decline whereas government spending as well as consumer spending did not
- "Implementation of investment tends to have a lag, the peak of investment comes later than the peak of economic cycle"
- Post bubble era, Japanese firms were saddled with debt from land purchases of extreme high values. It took the Japanese society really long time to realize the bubble era is coming to end, and it took firms very long time to begin unwinding of such overvalued assets
- In a typical market, firms saddled with debt would have to quickly exit either through bankruptcy or cooking its own books (which in the typical market, would often get shorted by targeted funds). However, in Japan neither happened (which speaks a lot about how Asian countries function), instead:
- Japanese firms held those quickly devaling asset in its book (because most of them believed land value decline in Japan would always be temporarily because "this time is different" or "Japan is different") while more and more firms collapsed. Banking crisis, which should've happened within months, didn't happen in Japan for 7 full years
- The way things were held was simple, banking system know the underlying asset of their clients are not worth much, thuse they began allowing payment deferrals or lower of their interest rates (thus marking then no longer as non-performing-loans (NPL). However, after 7 full years of subsidy through the banking system, credit crunch began and Ministry of Finance (MoF) had to bail those banks out as more Japanese banks became insolvent
- The way Japan is solving (or rather, not solving) its problem is such: MoF would often nationalize banks, or use other legal ways to prop out those banks to allow so-called "Zombie" companies to survive by deferral of their loan obligations. However, just because interest is deferred doesn't mean the loan is forgiven: those zombie companies still on paper have to pay for those assets
- In essence, Japanese taxpayers are subsidizing merely the interest rate difference for those overvalued assets. It's an open secret of sorts that Japanese banking system are insolvent, and probably has been for decades (ironically, as of writing, I also know Chinese banking system is insolvent - but recently, unlike Japan for decades - yet the Westerners don't know that, whereas the Chinese with the norm of Confucius thinking don't think it's an issue)
Displaying 1 of 1 review