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What caused Japan's Lost Decade?

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RinNatsume
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Post: #1
What caused Japan's Lost Decade?

From Wikipedia: http ://en.wikipedia.org/wiki/Lost_Decade_(Japan)

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The Lost Decade or the Lost 10 Years (失われた10年 Ushinawareta Jūnen?) is the time after the Japanese asset price bubble's collapse within the Japanese economy. The term originally referred to the years from 1991 to 2000,[1] but recently the decade from 2001 to 2010 is often included,[2] so that the whole period of the 1990s to the present is referred to as the Lost Two Decades or the Lost 20 Years (失われた20年, Ushinawareta Nijūnen). Over the period of 1995 to 2007, GDP fell from $5.33 to $4.36 trillion in nominal terms,[3] real wages fell around 5%,[4] while the country experienced a stagnant price level.[5] While there is some debate on the extent and measurement of Japan's setbacks,[6][7] the economic effect of the Lost Decade is well established and Japanese policymakers continue to grapple with its consequence.


What caused Japan's Lost Decade which is a stark contrast from vibrant Japanese economic growth during the 1980s?

12.11.2014 10:31
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Helsworth
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Post: #2
RE: What caused Japan's Lost Decade?

Cause: private debt deflation.
The japanese government wasted around 20 years with Quantitative Easing (a monetary swap operation), instead of using proper fiscal policy (fiscal stimulus and or reduction in fiscal drag) to shorten the private sector's deleveraging process. QE has been done in the west as well, and with no results - except a widening of the wealth gap, thought fiscal austerity measures are also part of that. The basic tenet is that during a downward cycle, when the private sector wants to save more in order to be able to make bank payments without going bankrupt - is not going to rush off and borrow more money, no matter how attractive the interest rate is.
That shortfall is domestic private spending needs to be covered by some other sector. Either the foreign sector runs a big enough net commercial deficit against the country in question (thus, exporting net aggregate demand to it) - or the government cover that spending shortfall via more public spending and or less taxation.


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This post was last modified: 12.11.2014 10:58 by Helsworth.

12.11.2014 10:55
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