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Japan's Lost Decades

Economic stagnation in Japan

Japan's Lost Decades

Japan's Lost Decades, starting in 1990, saw minimal GDP growth, rising debt levels, and various crises, impacting the economy significantly. Real wages fell, GDP decreased, and Japan lost its position as the world's third-largest economy to Germany in 2024. The long-lasting effects of the Lost Decades are acknowledged by policymakers.

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Meiji Restoration Junichiro Koizumi Shinzo Abe Russo-Japanese War Great Depression Bank of Japan Second Sino-Japanese War Hirohito Asian Financial Crisis Toyotomi Hideyoshi

Timeline

Japan Issued First Government Bonds

In 1965, Japan issued its first government bonds, marking the beginning of a significant increase in government debt that would have long-lasting effects on the economy.

Plaza Accord Yen Appreciation

The Plaza Accord of September 1985 led to the appreciation of the Japanese Yen, which was one of the factors contributing to the formation of the Japanese economic bubble.

Bank of Japan Cuts Interest Rates

In 1986, the Bank of Japan reduced interest rates from 5.0% to 2.5%, contributing to the buildup of a speculative bubble in the economy.

Bank of Japan increases interest rates

In May 1989, the Bank of Japan raised interest rates in an attempt to control asset-price inflation and stabilize the economy. This move came after a period of sharp monetary expansion and soaring asset prices in Japan.

Japan's Equity and Real Estate Bubbles Burst

In the fall of 1989, Japan experienced the bursting of its equity and real estate bubbles. Equity values plummeted by 60% from late 1989 to August 1992, while land values saw a staggering 70% drop by 2001.

Japanese Asset Price Bubble Burst

The bursting of the asset price bubble in Japan in January 1990 led to a sharp decline in equity and asset prices, causing Japanese banks and insurance companies to be burdened with bad debt.

Nikkei Stock Market Drop

In August 1990, the Nikkei stock market index had dropped to half of its peak value due to the central bank implementing its fifth interest-rate hike.

Japan's Lost Decade begins

Following the economic shock, Japan entered a period of stagnation known as the Lost Decade, characterized by low growth, deflation, and struggling stock and property markets.

Japan's Lost Decade (1992)

Between 1985 and 1990, Japan experienced a period of economic prosperity marked by an asset bubble fueled by consumption, speculation, corruption, economic mismanagement, and excessive lending. The burst of the bubble in the early 1990s led to a prolonged period of stagnation known as Japan's Lost Decade.

Bank of Japan's Interest Rate

Since 1994, the official interest rate in Japan has remained below 1%, reflecting the prolonged period of low-interest rates as a response to the economic challenges faced during the Lost Decades.

Increase of Consumption Tax Rate and Asian Currency Crisis

In 1997, Japan increased the consumption tax rate from 3% to 5%. The same year also witnessed the Asian currency crisis, which added pressure on the Japanese economy from multiple directions.

Return of Japan's Liquidity Trap

Paul Krugman's analysis in 1998 highlighted Japan's economic slump and the reemergence of the liquidity trap. This situation posed challenges for monetary policy effectiveness and economic recovery in Japan.

Introduction of Zero Interest Rate Policy

In 1999, the Bank of Japan introduced a zero interest rate policy, signaling the start of its unconventional monetary policy approach.

Japanese Economy Post-Bubble Burst

After the burst of the economic bubble in Japan, there have been discussions on the impact of deflation on economic growth. Some argue that pulling the economy out of deflation will lead to a recovery in demand and growth.

Publication of Japan's Lost Decade

The International Monetary Fund published a report titled 'Japan's Lost Decade' discussing the economic challenges faced by Japan during the 1990s.

Launch of Abenomics With Change In Administration

In the latter half of 2012, Prime Minister Abe introduced Abenomics, a set of economic policies including bold monetary policy, flexible fiscal policy, and growth strategy to stimulate private investment.

Japan's Lost Decade Book Publication

In 2017, a book titled 'Japan's Lost Decade' was published, attributing Japan's economic problems to a 'vertical investment-saving' curve.

COVID-19 Pandemic Impact

The COVID-19 pandemic and subsequent recession in January 2020 further impacted Japan's economy, leading to challenges and contributing to the country's economic struggles.

Japan’s Lost Decade: Lessons for Other Economies

The Asian Development Bank Institute published a report titled 'Japan’s Lost Decade: Lessons for Other Economies' discussing the economic challenges faced by Japan and the lessons that can be learned by other economies.

End of the Timeline
Japan's Lost Decades

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