Japan: Bubble, Bust, and Stagnation Flashcards
Fun Fact
Japan has some of the most efficient and technologically advanced manufacturers in the world
Japan has some of the most inefficient businesses in the world with poor labor productivity
Japan’s Problems:
Throughout the 1980’s, Japan appeared to boom.
What did Japan do with all their cash?
Japanese companies made a series of high profile overseas acquisitions.
Huge increases in stock prices and commercial real estate values in Japan
What did the Japanese government do?
Tried to regulate the economy but failed
A story of money and art
A rise in interst rates finally bursts the bubble in Jan.
Exchange Rates:
Export-led growth and large trade surpluses lead to pressure for increased currency valuation
Increased currency valuation makes it difficult to export
Wasted Investment
Japanese companies continued to invest heavily in spite of poor returns on investment
Made possible in part by weaknesses in Japanese economic organizations
Is confucian capitalism “crony capitalism”
Japan’s Problem:
Recession and stagnation made weaknesses in Japanese economic organization apparent
Heavy investment made possible by bank loans
-bank financing among related companies removed capital from market pricing
High level of mutual ownership among corporations
- as much as 60% of the stock of the companies in the Nikkei 225 index owned for relationship reasons
- Much of Japanese equity is owned by banks - Mutual ownership may have contributed to stock market bubble
The same ownership stuctures which allowed them to focus on long term investments removed competitive pressures
Keiretsu
not controlled by anyone person or family. but there is a committee that meets - coordinating groups: oligarchy
Japanese corporations had become adept at hiding their true conditioins
Off the books transactions, lack of shareholder oversight
Sale of related company shares during the stock market boom
Banks hid their problems better than most
Keiretsu
not controlled by anyone person or family. but there is a committee that meets - coordinating groups: oligarchy
Japanese corporations had become adept at hiding their true conditioins
Off the books transactions, lack of shareholder oversight
Sale of related company shares during the stock market boom
Banks hid their problems better than most
Japanese Banks
Although they built some of the largest banks in the world, they had very thing profit margins
in 1990, the ministry of finance estimated that non performing loans at banks were about 300$ billion dollars or 10% of GDP
- foreign estimates were about double this official figure - 1998, Ministry of Finance doubled its estimate to $600 billion dollars leading foreign analysts to think the number must be even higher
How did this happen?
Many of their loans went to relationship companies
Little or no regulation
no deposits insurance so the MOF had to keep banks from failing —> bailing out the banks
Culture
considerable loosening over cultural controls
some freedom of religion and self expression
gradual rehabilitation of parts of Chinese tradition, Confucianism
