Home Search Sitemap Contact Bookmark

Free Dissertations - Economics Dissertations

(jobson Barney, Ft World Report 2003). Japan's Long Recession Has Been ...

(Jobson Barney, FT World Report 2003).
Japan's long recession has been highlighted by an ongoing price deflation, stock market underperformance to lowest index levels in 2003, unemployment rate soaring to over 5%, and corporate declining profit margins.
Two main issues have been posed as weaknesses:
1. Financial system's gloomy condition: The banking system is a critical factor; bad loans in particular mortgages are discouraging; although in 2003 the level of bad loans fell by 18% to US$ 298 billions; private analysts consider that reporting system is not providing transparency. (Jobson, FT World Report 2003)
2. Escalating public debt set out predictions about the real capacity of Japan to get through this crash and make the recovery successful. Repeated attempts to overcome this scenario have remarked the last 10-year.
Economic Outlook
Table 1 illustrates an 8-year outlook of relevant data that delivers a comprehensive view on the economic fundamentals.
Since 2000 the economy has been sending signals of potential recovery. However, analysts have appraised that due to structural issues not being tackled by the government (as explained earlier) the economic comeback is set to continue in a downward spiral trend. The unbalance in economic policy proposed by economic officials during the recession is the main reason of its lengthy state.
Real Sector
GDP trend reflects a consistent pace mainly by the revival of exports; in real terms industrial production boosted by exports to US and China.
In terms of unemployment, the rate soared to nearly 5.5% in 2002 compared to 2.9% in 1994. Over the last three years (2004, 2005, 2006) a relief trend has regained expectations and lower levels are potentially feasible should investment levels continue fluent. On the other hand, some experts explain that the effect of higher productivity will not ease the creation of more jobs. (Maital S, 2003) However, amongst the top-10 large economies Japan has one of the lowest unemployment levels.
In 2003, the minister of finance Mr. Takenya affirmed: The country is producing more, but the prices it can fetch for those products are falling just as quickly. As a result, in nominal terms, Japan's economy actually shrank in the third quarter. Such stubborn deflation makes life harder for borrowers. (The Economist, Global Agenda, November 2003)
Looking at M1 growth, the Bank of Japan has increased liquidity to boost demand. This action has been expected as a direct pressure on demand and prices, mainly due to excess capacity production and credit power. However, the level of confidence from the public is yet to be upbeat. Despite better results in private consumption, the increase is still modest.

Table 1. Japan Key Indicators (1998 2006*)
Key Indicators
1998
1999
2000
2001
2002
2003
2004
2005
2006*

Real GDP % of change
(1995 prices)
-1.


Thanks