Global Shocks by Nicholas P. Sargen

Author:Nicholas P. Sargen
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

Part II

Easy Credit Breeds Asset Bubbles and Instability

© The Author(s) 2016

Nicholas P. SargenGlobal Shocks10.1007/978-3-319-41105-7_7

7. Japan’s Bubble Culminates in Two Decades of Deflation

Nicholas P. Sargen1

(1)Fort Washington Investment Advisors, Cincinnati, Ohio, USA

Throughout much of the post-World War II era, Japan was the world’s most dynamic economy. Its economic growth rate far surpassed that of the USA and Europe, and it emerged in the 1980s as the world’s largest capital exporter on the back of a powerful export machine that generated persistent large trade and current account surpluses. In 1985 the economy was hit by a “yen shock” as the leading industrial economies drafted the Plaza Accord to produce an orderly decline of the dollar. Yet Japan appeared extremely resilient: The economy grew by 4–5 % per annum in the second half of the 1980s, while the stock market and real estate values soared as interest rates fell to record lows.

Conditions changed dramatically by the end of the decade, however, when the Bank of Japan tightened monetary policy to combat “asset price” inflation. While Japan’s economy withstood the initial tightening, it stagnated in the early 1990s, as the stock market and real estate market both dropped precipitously. Over the next two decades the economy was mired in a low growth trap that over time created deflationary pressures.

This dramatic about-face in economic performance poses several questions for investors:1.What went so wrong to transform a dynamic economy into one that languished for two decades?

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.