2. The Beginning: Asset Bubble
The Japanese stock price index began to rise in the early 1980s and continued to
rise to more than five times the 1980 level. Then, from 1990 it started a long
period of decline.
The Japanese land price also rose throughout the 1980s and peaked in 1991. The
average land price more than doubled. The turning point for the land price came
one year later than the stock market, in 1991. (source: www.grisp.ac.jp)
3. The Cause (I) : Monetary Easing &
Deregulation
Bank deregulation - As competition began, the banks rushed to find new borrowers and
projects in SMEs and land & property investment. They lacked the ability to correctly
evaluate these new borrowers and projects. When the economy was booming, they
over-lent. When the bubble ended, these loans became a huge mountain of bad debt.
Monetary Easing - In 1985 there was a sharp yen appreciation, and the Bank of Japan
lowered short-term interest rates and eased money in response. The Bank of Japan's
policy reaction function is such that traditionally, Japan's monetary policy responds
positively (becomes expansionary) to (i) yen appreciation and (ii) domestic recession.
(source: www.grisp.ac.jp)
4. The Cause (II) : Monetary Easing &
Deregulation
USD/JPY
(left scale)
BOJ Rate
(right scale)
source: Bank of Japan
15. Measures by Central Bank of Japan
Stabilize the price
Provide market liquidity by lower the interest rate
Money supply
Quantitative easing from 2001
16. Lost decade
Recession (1991-1993)
Temporary recovery (1994-1996)
Deep recession (1997-1999)
18. Measures by Central Bank of Japan
Quantitative easing from 2001
Stabilize land price
Average growth rate around 2% per year
Deflation has moderated but not disappeared
21. Solutions
Stability
and efficiency in all business
operations
Learning in action
Enhancement of communication channels
Issues and action plans
22. Key lessons
Act quickly
Spending is not the answer
Don’t rack up debt
Counteract demography
24. Analogies
Banking crisis
Spreading to
Financial
Markets
Deflation
RISK?
Deleveraging
Real estate
In
Bubble
Private sector
25. Divergences 1
Weak dollar
Dollar nominal and real effective exchange rates, Jan 2002-Apr 2011 (Jan 2002 = 100)
JPY Real Effective Exchange Rates (1970-) (2005 = 100 )
Source: VOX, BOJ
26. Divergences 2
Better demographics
Sources: Source: UN Medium Variant Projections, World Population Prospects: The 2008 RevisionSource: UN Medium Variant Projections, World Population Prospects: The 2008 Revision
36. Bibliography
• Toward a Eurozone’s lost decade? Analogies and differences to Japan 1991-2003 ECONOMIC RESEARCH NATIXIS
• Is a Japan-Style “Lost Decade” Ahead for the US? Posted by Sharon Fay on Aug 23, 2012 in AllianceBernstein, Americas,
• Why America Isn’t Headed for a ‘Lost Decade’ By PATRICK SMITH, The Fiscal Times, October 6, 2011