International Negotiatons November 25

Camille Anne Hanley

AB FS401 Jumel Estraero

A Study on Japans Lost Decade and Abenomics

Submitted to the subject International Negotiations

Hanley Camille Anne

November 2017
 Chapter I
THE PROBLEM AND ITS BACKGROUND

Background of the Study

Complexity and Contrast explains the place called Japan, possessing intricate features
of ancient cultural tradition and has emerged as one of the most economically and
technologically advanced nation .Education is heavily accentuated, as it is one of the
worlds literate countries. Westernizations are evident, the agricultural region has low
population, their living comes from the rice field and orchard farming. The urbanized is
heavily populated, heavily industrialized and polluted. (Fred et al.) Japan has the thirds
largest economy achieving a remarkable growth. Japan is a major aid donor and source
of capital and credit. Its relations to other states are heavily influenced by before and
during the Second World War finding it difficult to atone or accept its treatment of the
citizens of countries it occupied.
Shinzo Abe became the Prime Minister at 2012, re-elected at 2014 his focus of the
country is from his own measure the Abenomics. it aims to boost the Japans
struggling economy. Contact with China and Korea brought changes in Japan,
civilization then formed from 8th to 12th century. It was a period of domination of military
rules carving isolation from the outside world. The countrys reopening ishered contact
with west it then inspired to become a modern industrialised nation1

Lost Decade for Japan, was described the Japanese economy in the 1991. The GDP
grew 1.14% annually, below other industrialized nations. (Investopedia n.d) Japans
economy produces worlds second-largest Gross national product next to United States.
At 1980s ranked first in GNP per capita world-wide. (Justin Kuepper 2017 ). Japans
economy pillar is the political stability and well-maintained rule of law that requires
serious efforts in reforming, keeping the long-established economic and cultural
interests. Its export-oriented economy has benefited much of the nations growth,
Japan maintains non-tariff barriers that hurts the domestic prices and lags behind other
countrys bilateral trade agreements, likely not to expose sectors to foreign competitors.
Japans economy was the envy ay 1980s on terms of economic produce, at an average
annual rate of 3.89% in comparison to the United States at 3.07% (according to Bureau
of Economic Analysis). From 1991 to 2001, Japan experienced an economic stagnation
and deflation that causes slow growth in the country.

1
J The Balance, Japan's Lost Decade: Brief History and Lessons, November 24, 2017
Japan, Japan Economy: Population, Facts, GDP, Business, Trade, Unemployment,November 24, 2017,
Japan, Encyclopdia Britannica, October 23, 2017
Investopedia, The Lost Decade: Lessons From Japan's Real, April 29, 2008
BBC News, Japan country profile, October 10, 2017
Prime Minister Abes Three Arrows or Abenomics combines fiscal expansion, monetary
easing and structural reform for the immediate boost of domestic demand and gross
domestic product growth. The Prime ministers policy aim is to improve of the countrys
global competition, reforming labour markets and trade partnerships expansion, to pull
Japan out of decade long deflationary slump.

CHAPTER II
A. Statement of the Problem
This study will aim to figure out whether the Abenomics has made significant changes in
boosting the Japans economy.
Specifically, this study would like to seek answers to the following questions:

1. How did this crisis affect the Country?

2. What are the causes of this crisis?

3. Did Abenomics relay its purpose on overcoming the crisis?

CHAPTER II
B.METHODOLOGY
This part will define the research methods to be used to conduct the study, explain how
the necessary data and information to address the research objectives and questions.
Research design, participants of the study, sources of data, sampling technique, data
gathering procedure and research instrument that will be used are given.

Research Design
Historical development, the researchers will be using secondary data for the study
purpose in order to get more accurate analyzation. The evidence supporting this study
are studies from events of the past, The secondary data will be gathered from the
books, journal, articles and from various papers and documented files.

CHAPTER III
LITERATURE REVIEW
This chapter contains different types of literary works, foreign or local discussions which
offer topics that this study is related to. It also contains relevant studies gathered by the
researchers in significance to the study.
The lost decade began to be applied to Japans economic performance that started with
the popping of the greatest stock market. The lost decade is not only stock market loss
but also a crashing property of interest rates, rising unemployment, declining and
stagnant GDP and the demographic profile.
Japans economy was sent into economic stagnation that went on for 10 years,
experiencing a low growth and deflation.
At 2013, Prime Minister Shinzo Abe revealed an economic policy package to revive the
Japanese economy known as abenomics. Japans lost decade as largely caused by
speculation. Record-low interest rated fuelled stock markets and real estate sending
valuations soaring, properties and companies tripled valuations selling a three square
meter near imperial palace for $600,000. Realizing that the bubble was unsustainable,
the finance ministry raised the interest rates to cover the speculation. Results, led to
stock market crash and debt crisis. Borrowers failed to make any payments on debts.
The issue manifested in banking crisis and government bailouts.
Economist Paul Krugman points out speculations of lost decade on consumers and
companies that saved too much causing the economy to slow down. Other Economists
blames both the countrys aging population demographic and monetary policy even the
slow response of the bank of Japan (BOJ) in intervening the marketplace may have
worsen it. Japanese people responded this crisis with saving more and spending less
which had negative impact on demand contributing to deflationary issues encouraging
consumers to further hoard money resulting in a deflationary spiral. By early 2000s,
Japan had largely resolved the non-performing loan problem but economic growth
hardly accelerated, now resulting in to Two Lost Decades. It is not the short-lived
inappropriate fiscal and monetary policy that causes the economy to move forward
sluggishly. It needs to be seen on more long-term decline on productivity.
Japan was already suffering from the lack of demand even before the crisis, with the
problem of chronic excess saving due to extremely high investment at the high speed
growth of era. According to Keynesian economics if the intended saving is greater than
the intended current surplus and intended government deficit, it raises an excess supply
of goods. Reduction in GDP in reducing the excess saving will restore balance in the
market. The three arrows program, the first arrow were monetary policy, which consists
of unlimited money printing or quantitative easing. The second arrow was fiscal policy
which consists of tax relief and more government spending on infrastructure and lastly,
the third arrow is the structural reform of the over-regulated, over-protected Japanese
economy.
Taking out the first arrow, its goal was to cheapen the Japanese yen and the currencies
of its Asia export competitors including Korea, Taiwan and China. It worked somehow,
at the first run. Its purpose is to increase inflation and form higher import prices.

The arrow of fiscal policy seemed to misfired, instead of cutting with it the taxes, japan
raised sales taxes, GDP plunged 1.9% on the second quarter of 2014 and fell by 0.6%
at the third quarter. The third arrow, the structural reform, was never used this arrow
concludes immigration, women in the workforce, more efficiency in retail distribution
network and cleaning debts. Critically, the structural reform is the long-term solution
needed by the Japan.
Japanese stock market tumbled at 8% erasing almost the gains for last 2 years. Martin
Schultz, Chief economist at Fujitsu research institute, for every 1% Japans economy
grows. Between 0.5% and 0.7% comes from exports. Japans population is growing old
and shrinking the society. Between 2012 and 2014 yen value against US dollar is driven
down. With the yen suddenly getting stronger, from 120 yen dollar to 112 yen to dollar.
The bank of Japans quantitative easing programme is trying to put back the liquidity in
the economy. But banks and corporations gave been hoarding the cash, using it to
repair holes of their balance sheets. If some were spent on for shareholders, or
increasing wages for employees it will dramatically boost Japans domestic
consumption said Ed Rogers when he estimated the corporate cash that could amount
to $3 trillion
People believes that abenomics will come to an end and Japan will return to deflation
since the working population is decreasing, a good reason not to raise wages or hire
people. What the bank of Japan doing might be good for the young economy. With the
falling birth rates the population could drop to 97million by 2050.

Japan needs to welcome immigrants, it is the worlds largest creditor and Japans big
export corporations are still among the best. The problem is, it has a mature economy,
deeply hierarchical and run by people of old age and are resistant to innovation.
Today, after the bubble burst in Japan, Japan still continues to struggle with deflation,
Zero interest rates, and weak banks all in negative growth. 2

James McBride and Beina Xu, Abenomics and the Japanese Economy, November 24, 2017
Japan Gov, ABENOMICS, November 24, 2017
Kyoji Fukao et al. The structural causes of japans lost decade n.d.
Rupert Wingfield-Hayes, BBC News, Off target: Is it the end of 'Abenomics' in Japan? February 15, 2016
Jim Rickards, Japan's in the middle of its 3rd 'lost decade' and a recovery is nowhere in sight, March 23, 2016
Prime Minister is shaping up his economic agenda.
Prime minister Shinzo Abe, is trying to shape up, focusing on steering firms to hike
wages and keeping up the economic growth with loose fiscal and monetary policies.
The policy makers plan to boost salaries. Analysts says, while the government has no
plan on spending, BOJ pledges to keep borrowing costs virtually at zero with ultraeasy
policy to limit the huge public debt. Hiroshi Shiraishi, senior economist at BNP Paribas
Securities says while in the meantime the wage hikes would be crucial, it could
generate inflation and positive economic
To encourage more growth, the government considers expanding tax breaks for
companies that raise salaries. Cash earnings rose to 0.7% in August, but adjusted at
the inflation and fell 0.1%. Abenomics, his three pronged policy, has helped boost
stocks prices and enrich manufacturers by weakening the yen. From 1991 through
2001, the Japanese economy outgrew this period of stagnation but it did so at the pace
much slower than other industrialized nations. Abenomics proved hard to ignite inflation,
the simple diagnosis of failures ignores what the economics has achieved. The
government has realised some mistakes and loosened the purse string, ignoring
arbitrary fiscal targets. The past policy failures over the 4 years has included a little
Abenomics.
I believe Abenomics has succeeded in the areas most important to me as an investor
says Scott McGlashan, as an investor were earnings and shareholders, corporate
profits are high in the in the yeat March 2016. Corporate governanace has been the
heart of abenomics. It is describes as a modest growth. Japans nominal gross domestic
product and output of goods gas been rising , dynamics are changing the Prime
Minister will take action yo expose ineffecient part of the japan economy to
competition. Its time for us to start innovating and step into a new, open world, Mr.
Abe exhorted this week.3

3
LEIKA KIHARA AND STANLEY WHITE, Abes post-election policy targets wages but delays fiscal reform, OCT 26,
2017
Barry Nielsen, Investopedia, The Lost Decade: Lessons From Japan's Real Estate Crisis (n.d.)
Financial Times, The quiet but substantial successes of Abenomics, (2017,May 1)
Scott McGlashan, Financial times, (JUNE 24, 2016)
Greg Ip, Abenomics Is Doing Better Than You Think (Oct. 7, 2015)
IV. Presentation, Interpretation & Analysis or PAID (Pres, Analysis, &
Interpretation of the Data)

Japan has persistently suffered from deflation and inflation. Japan is needed to resolve
this problem and escape in order to restore the effectiveness of monetary policy, but
it is unlikely to simply resolve its structural problems by increasing inflation to keep the
real interest rates negative or at low point.
With all three arrows of Abenomics having failed in different ways, the Japanese
economy looks like it is starting to roll over again. This is revealed in the latest
Japanese manufacturing purchasing managers index (PMI).
Other people does not think so, from the people who visit the Japan, in terms of
electronics, japan is technologically at higher stage, such as phone and high internet
speeds. Japan leaders seem to discus the woes but not mentioning the strong trend
which brought the japan earn Juggernaut at 1980s. Anyone who knows East Asia
knows that what is not said is often far more informative than what is said. Eamonn
Fingleton gives as a pointer.
Breaking out in the liquidity trap, Japan tried to break out and tried several fiscal policy
measures, money was wasted on public works projects and did not do so well. the
household and the business will have to spend and invest and can be successful
through fiscal policy. Governments will directly give money to the consumers through
tax reduction.
Another ways is to re inflate by increasing the money supply as opposed to target
nominal interest rates banks can infuse money through the purchase of government
bond, a debt security to support government pending in open- market operations, by
doing so it effectively exchanges for cash, thus increases the money supply . Credit
crunch whereijn banks have tightebed lending requirements or do not lend at all
because of either needing reserves to repait balance sheets after loss that happened
japanese bank. Bank losses must be recognized banking system need to be
transparent and the confidence to asses and manage risks
Milton Friedman, an American economist suggests avoiding liquidity trap by financial
intermediary such as a commercial bank, investment banks, mutual funds and pension
funds they offer benefits to the average consumer, including safety.

V. Summary, Conclusion & Recommendation

Japans lost decade has provided economic lessons, some argue agaoinst the
intervention on the part of central banks contending they will lead to lead to moral
hazard and longer-term problems. Some key lesson are to act quickly on the mayer at
hand, BOJs reluctance quickly caused a crisis of confidence among investors. Japan's
attempts to spend on public works projects arent successful in recovering the economic
woes. Japan's reluctance to raise its retirement age or taxes only helped to further its
demographic problems and Japan's massive levels of debt were responsible for its
crisis and the BOJ was behind the curve in raising interest rates.
Japans lost decade was likely caused by speculation during an economic boom that
led to debt crisis and economic boom and the long term deflation. Lessons can be
learned from Japan's lost decade, from the underlying causes to potential solutions.

VI. Reference (summary of all sources)

Justin Kuepper (2017 October 12 ). The Balance. Retrieved from

https://www.thebalance.com/japan-s-lost-decade-brief-history-and-lessons-1979056
Heritage (n.d.) Japan retrieved from http://www.heritage.org/index/country/japan
Fred G. Notehelfer, Marius B. Jansen, Kitajima Masamoto, Yasuo Masai, Shigeki Hijino,
Taro Sakamoto, Yasuo Masai (23 October 2017). Brittanica. Retrieved from
https://www.britannica.com/place/Japan
Barry Nielsen (n.d.). Investopedia. Retrieved from
https://www.investopedia.com/articles/economics/08/japan-1990s-credit-crunch-
liquidity-trap.asp
BBC (10 October 2017) Japan Country Profile. Retrieved from
http://www.bbc.com/news/world-asia-pacific-14918801
James McBride and Beina Xu (February 10, 2017). Investopedia. Retrieved from
https://www.cfr.org/backgrounder/abenomics-and-japanese-economy
Japan Gov (n.d.) Abenomics. Retrieved from
https://www.japan.go.jp/abenomics/index.html
Kyoji Fukao et al.(n.d.) The structural causes of japans lost decade (PDF). Retrieved
from http://www.spfusa.org/wp-content/uploads/2015/01/The-Structural-Causes-of-
Japans-Lost-Decades-201405114pdf.pdf
Rupert Wingfield-Hayes (15 February 2016) Off target: Is it the end of 'Abenomics' in
Japan? Retrieved from http://www.bbc.com/news/business-35559860
Jim Rickards (Mar. 23, 2016) Japan's in the middle of its 3rd 'lost decade' and a
recovery is nowhere in sight retrieved from http://www.businessinsider.com/japans-3rd-
lost-decade-recovery-nowhere-in-sight-2016-3
LEIKA KIHARA AND STANLEY WHITE, Abes post-election policy targets wages but
delays fiscal reform, OCT 26, 2017. Retrieved from
https://www.japantimes.co.jp/news/2017/10/26/business/economy-business/abes-post-
election-policy-targets-wages-delays-fiscal-reform/#.WhkZatKWYfc
Financial Times,The quiet but substantial successes of Abenomics (2017, May 1)
https://www.ft.com/content/62cc7d40-2e65-11e7-9555-23ef563ecf9a
Scott McGlashan, Financial times, (JUNE 24, 2016) retrieved from
https://www.ft.com/content/6f9468da-3898-11e6-a780-b48ed7b6126f
Eamonn Fingleton (FEB 26, 2011) The Myth of Japan's 'Lost Decades' retrieved from
https://www.theatlantic.com/international/archive/2011/02/the-myth-of-japans-lost-
decades/71741/