Japan Lost Decade vs US, EZ


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explaining Japan Lost Decade and possibility of the same problem faced by USA & EZ

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Japan Lost Decade vs US, EZ

  1. 1. Japan’slost decade Indra PRATAMA Qiong QI Qianqian SHI
  2. 2. The Beginning: Asset BubbleThe Japanese stock price index began to rise in the early 1980s and continued torise to more than five times the 1980 level. Then, from 1990 it started a longperiod of decline.The Japanese land price also rose throughout the 1980s and peaked in 1991. Theaverage land price more than doubled. The turning point for the land price cameone year later than the stock market, in 1991. (source: www.grisp.ac.jp)
  3. 3. The Cause (I) : Monetary Easing & DeregulationBank deregulation - As competition began, the banks rushed to find new borrowers andprojects in SMEs and land & property investment. They lacked the ability to correctlyevaluate these new borrowers and projects. When the economy was booming, theyover-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 Japanlowered short-term interest rates and eased money in response. The Bank of Japanspolicy reaction function is such that traditionally, Japans monetary policy respondspositively (becomes expansionary) to (i) yen appreciation and (ii) domestic recession.(source: www.grisp.ac.jp)
  4. 4. The Cause (II) : Monetary Easing & Deregulation USD/JPY (left scale) BOJ Rate (right scale)source: Bank of Japan
  5. 5. The Results…source : www.tradingeconomics.com
  6. 6. The Results… Long Term Deflationsource : www.tradingeconomics.com
  7. 7. What’s Next (I): Liquidity Injection Failed….source: Bank of Japan, Nomura
  8. 8. What’s Next (II): Deleveraging… Funds Raised by Non-Financial Corporate Sectorsource: Bank of Japan, Cabinet Office Japan, Nomura
  9. 9. What’s Next (III): Inconsistency in Fiscal Policysource: Ministry of Finance Japan, Nomura
  10. 10. What’s Next (III): Delayed in Monetary Policy Adjustment BOJ rate ECB rate FED rateSource: http://moneyunleashed.com/prime_rates
  11. 11. What’s Next (V): Increasing Government Spending….source: Ministry of Finance Japan, Nomura
  12. 12. Japan’s GDP Grew in spite of Massive Loss of Wealth & Private Sect Deleveragingsource: Cabinet Office Japan, Real Estate Institute Japan, Nomura
  13. 13. Deficit
  14. 14. Appreciation of Japanese yen
  15. 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. 16. Lost decade Recession (1991-1993) Temporary recovery (1994-1996) Deep recession (1997-1999)
  17. 17. Money supply
  18. 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
  19. 19. Long-term Government bond Household’s saving are vast Most bonds are in the hands of domestic investors
  20. 20. Unemployment rate
  21. 21. Solutions Stability and efficiency in all business operations Learning in action Enhancement of communication channels Issues and action plans
  22. 22. Key lessons Act quickly Spending is not the answer Don’t rack up debt Counteract demography
  23. 23. Comparison JAPAN VS. USA JAPAN VS. EU
  24. 24. Analogies Banking crisis Spreading to Financial Markets Deflation RISK? DeleveragingReal estate In Bubble Private sector
  25. 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. 26. Divergences 2 Better demographicsSources: Source: UN Medium Variant Projections, World Population Prospects: The 2008 RevisionSource: UN Medium Variant Projections, World Population Prospects: The 2008 Revision
  27. 27. Divergences 3 Faster deleveraging
  28. 28. Divergences 4 Quick reaction from FED
  29. 29. Analogies Banking crisis Tighter Balance Europe’s Bank SheetsRegulation Lost decade? Recession Budget Consolidation
  30. 30. Divergences 1 Depreciation of EURO
  31. 31. Divergences 2 A not-so-severe decline in wealth
  32. 32. Divergences 3 Quick reaction to the crisis
  33. 33. Divergences 4 Sovereign debt crisis
  34. 34. Other Divergences Fiscal integration Outside help/pressure
  35. 35. ConclusionLessons learned?
  36. 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
  37. 37. Resources http://www.tradingeconomics.com http://www.boj.or.jp/en/ http://www.aei.org/