The document depicts Japan's balance sheet recession through a story told via interactions between different entities. It shows how low interest rates led to rising asset prices and excessive borrowing. When interest rates rose to control inflation, asset prices crashed, leaving many households and businesses technically bankrupt. The government issued bonds to increase the money supply and stimulate the economy through public works projects. Exports later improved, debts were repaid, and confidence returned, ending the recession.

1. Japan’s
Balance Sheet
Recession
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 1

2. Characters
Japanese Japanese Japanese Japanese USA
Household Industries Banks Government Government
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 2

3. I want to improve my GDP, So let us not allow Yen to appreciate
Good Idea!
I will make more money
from my exports.
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 3

4. Hey Japan! You can’t undervalue your currency
and dump your products in my market!
Let your currency appreciate!
Hi USA! You are my biggest buyer!
So I’ll do what you ask me to do,
though I don’t like it.
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 4

5. Hey Government! I am losing lot of money
in the exchange rate
due to Yen’s appreciation!
Don’t worry! I will ask banks to lend money
at low interest rates, people will borrow and
spend it to buy your products!
You can make money from
domestic markets.
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 5

6. Banks are giving money at such a low interest!
Its right time to borrow and
invest in stocks/property!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 6

7. Stock/ Property Prices
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 7

8. Hey I need a new office;
the property rates are rising rapidly!
I should get my new office
before the prices are too high!
Good decision!
That building is
just 7 Million Yens!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 8

9. Hey Banker! I decided to expand,
I plan to buy a new office for 7 Million Yen.
Oh that’s a good decision!
Property prices are rising
very high! Luckily for you
interest rates are so low, I
will sanction you a loan for
7 Million Yen.
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 9

10. Stock/Property
price Yen Value
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 10

11. Hey Central bank!
Prices are rising beyond control
We got to stop the inflation
before it goes totally out of control.
Let us increase the interest
and control flow of money!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 11

12. The new interest rates are too high!
I cant afford to invest or buy any more!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 12

13. Stock/Property Price
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 13

14. Property prices are crashing!
Your 7 Million Yen -new office
building is worth 1 Million Yen
only now!
That’s really bad!
I have to assess my situation now!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 14

15. Hey Banker! Property values are crashing,
How bad is my situation?
Yeah your building is only
worth 1 Million Yen now.
But you got to repay all the
7Million Yen you took as
loan for the building!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 15

16. Balance Sheet
ASSET LIABILITY
Notes Payable to Bank:
Office : 7 Million Yen
7 Million Yen
Office : 1 Million Yen
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 16

17. Hey your Assets are lesser
than your Liability!
You are Technically Bankrupt!
Yeah, I am not going
to let any one know about this!
I will repay my Liabilities silently
before any one knows about it.
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 17

18. Balance Sheet
ASSET LIABILITY
Notes Payable to Bank:
Office : 1 Million Yen
7 Million Yen
Notes Payable to Bank:
6 Million Yen
Notes Payable to Bank:
5 Million Yen
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 18

19. Hey you still have
lot of debt to repay!
Yeah, I am going to down size
and cut cost!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 19

20. Hey lot of people are losing jobs!
Yes! The situation doesn’t look good.
I am going to save as much as possible.
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 20

21. Bank
Deposits Lending
High Household savings Low Industry borrowing
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 21

22. Hey Industries,
we are lending at interest
rate close to 0%, Please
borrow money from us!
No Thanks!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 22

23. Hey Interest rates
are close to 0%,
shouldn’t we invest in
domestic productivity
and make people
buy our products?
We still have lot of debt to repay!
Also mood of people is not good,
they are not buying any more!
So we are not investing for
some time to come.
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 23

24. Ideal Money Downward Spiral
100 Yen 20 Yen
Flow Household
income
Savings in
Bank
100 Yen 20 Yen Spending:
Household Savings in 80 Yen
income Bank
Income to No Industry
Spending: Someone else
borrowing
80 Yen
80 Yen
Income to Industry
Someone else borrowing Only 80 Yen in circulation
80+20=100 Yen Investment to
produce: 80 Yen 20+16=36 Yen
20 Yen Household Savings in
income Bank
All 100 Yen are in circulation
Spending:
64 Yen
Income to No Industry
Someone else
borrowing
64 Yen
Only 64 Yen in circulation
Money gets stagnated in the banks
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 24

25. Hey Government!
Money supply is decreasing
in downward spiral!
We have to stop this
before a disaster!
If Industries
are not borrowing,
We will borrow !
I will issue Govt. bonds,
you buy it with your
un lendable money
That’s great! Money supply
will increase and
I will also earn interest
from the Govt.!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 25

26. I have borrowed
lot of money,
so I will build roads, bridges
and other welfare projects,
so that you can get a job!
Thank you Govt.! I will try to earn
as much as possible and save it!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 26

27. Bank
Deposits Lending
High Household savings Government borrowing
Money Supply back in control
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 27

28. Few years later….
Hey your exports are doing good
for the past few years!
Yeah, thanks to my exports,
I have repaid all my debts.
Now, I will start
investing in assets!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 28

29. Industries have paid
of their debts
and started investing in assets.
But still they are not borrowing!
They are investing with
their own savings!
Lets wait, I will borrow
from you till Industries
are confident enough
to borrow.
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 29

30. One fine day….
We cannot keep on investing
with our savings!
True, we are doing good.
We are confident of repaying debts,
lets start borrowing money
for our investments!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 30

31. Soon…
I have saved more than enough!
Me too! Lets start buying stuff,
its long time since I spent well.
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 31

32. Finally people have
started buying and industry
has started borrowing. My work
is over now, I am not going to
borrow any more!
Yeah that’s good news,
but you have to repay
all the money you have
borrowed from me!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 32

33. I thought it was all over!
Now I have to figure out
how to repay the money!
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 33

34. Reference and Further Study
Palaniappan Vairam Sarathy, MBA, Asian
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Institute of Management, Makati

35. Thank you!
Palaniappan Vairam Sarathy
MBA
Cohort 7
Asian Institute of Management
Makati, Philippines
Palaniappan Vairam Sarathy, MBA, Asian Institute of Management, Makati 35