Group 3 presented on the causes and consequences of deflation in Japan from the 1990s to present day. The key points are: 1. In the 1980s, Japan experienced a stock market and property bubble fueled by loose monetary policy and bank deregulation. When the bubbles burst in the early 1990s, it caused a major financial crisis. 2. Deflation set in as companies cut costs, wages stagnated, and consumers delayed spending. Deflation was difficult to overcome and Japan suffered from a "Lost Decade" of economic growth. 3. Abenomics, launched in 2012, aimed to combat deflation through aggressive monetary easing, fiscal stimulus, and structural reforms. While some progress

1. PRESENTED BY: GROUP 3
JANHAVI - 16020841057
KARAN - 16020841059
KATHAN - 16020841061
LOKENDRA - 16020841063
PARTHIV - 16020841075
VISHAL BUDHIRAJA - 16020841091
SUBMITTED TO:
Prof. Vikku Agarwal
JAPAN DEFLATION

2. DEFLATION IN JAPAN

3. 1999
2001 to
2006
Zero Interest
rate
Quantitative
easing

4. 2008

6. CAUSES OF DEFLATION IN JAPAN

7. 1990s- stock market and property bubbles burst.
Companies focused on cutting debt and shifting manufacturing overseas.
Wages stagnated.
Delaying in spending for as long as possible that continued the cycle.
Asset deflation
Price deflation
Monetary factors causing the deflation
https://www.weforum.org/agenda/2016/02/why-is-japans-economy-shrinking/ http://www.thebubblebubble.com/japan-bubble/ http://www5.cao.go.jp/zenbun/wp-e/wp-je03/03-00102.html

8. LAND AND STOCK MARKET BUBBLE
Japanese industry was first dominated by large family-controlled industrial and financial business conglomerates known
as zaibatsu (translated as “financial clique”), which evolved into keiretsu business conglomerates in the latter half of the twentieth-century.
Keiretsu conglomerates received a very high-level of support from the Japanese government – a system of crony capitalism that
became known as “Japan, Inc.,” which was both revered and reviled by Western commentators and executives for its unfair
advantage over domestic businesses.
By the 1970s and 1980s, Japan extended its domination to the global electronics industry as it manufactured the majority of the
world’s consumer electronics products and introduced innovative and revolutionary new products.
Overconfidence and the Bank of Japan’s loose monetary policy in the mid-to-late 1980s led to aggressive speculation in domestic
stocks and real estate, pushing the prices of these assets to previously unimaginable levels. From 1985 to 1989, Japan’s Nikkei
stock index tripled to 39,000.
By 1989, Japanese officials became increasingly concerned with the country’s growing asset bubbles and the Bank of Japan decided
to tighten its monetary policy. Soon after, the Nikkei stock bubble popped and plunged by nearly 50% from approximately 39,000 to
20,000 during the year 1990, hitting 15,000 by 1992.
Japan’s imploding stock bubble also popped the country’s real estate bubble and throwing the country into a deep financial crisis.

12. But on the
brighter side

16. 1.Discourages consumer spending. When there are falling prices, this often encourages people to delay purchases because they will be
cheaper in the future. In particular, it can discourage consumers from buying luxury goods / non-essential items, e.g. flatscreen TV)
because you could save money by waiting for it to be cheaper.
2.Increase real value of debt. Deflation increases the real value of money and the real value of debt. Deflation makes it more difficult
for debtors to pay off their debts. Therefore, consumers and firms have to spend a bigger percentage of disposable income on meeting
debt repayments.
3.Increased real interest rates. Interest rates can’t fall below zero. If there is deflation of 2%, this means we have a real interest rate of
+ 2%. In other words saving money gives a reasonable return. Therefore, deflation can contribute to an unwanted tightening of
monetary policy.
4.Real wage unemployment. Labour markets often exhibit ‘sticky wages’. In particular, workers resist nominal wage cuts (no one likes
to see their wages actually cut, especially when you are used to annual pay increases. Therefore, in periods of deflation, real wages
rise.
5.More difficult for relative prices and wages to adjust. If the average prices or wages are increasing by 3%, it is easier for some goods
to rise by 0% and some to rise by 6%. With inflation of 0%, it is harder to get this relative change in prices or wages.
6.Deflation can become entrenched and difficult to end. The experience of Japan in the late 90s and 00s, was that when deflation
became the new norm, it was very hard to change inflation expectations and regain normal growth.
CONSEQUENCES OF DEFLATION

17. JAPAN’S LOST DECADE

18.  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)
THE BEGINNING: ASSET BUBBLE

19. THE CAUSE: MONETARY EASING &
DEREGULATION
Monetary
Loosening
Bank’s
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.

20. CONSEQUENCES

21. source : www.tradingeconomics.com
Long Term Deflation
CONSEQUENCES

22. DEFICIT

25. ABENOMICS