Country Analysis

Japan
Made and compiled by
Aastha Kalra(09020241049)
Abhisake Sharma(09020241050)
Vishal Singla(09020241048)
Sridhar Vardharajan(09020241047)
Amit Kumar(09020241051)
Rishi Saraf(09020241068)
 Initiation of Japan in to the Global
Economy
• Japan was perceived as one of the more developed Asian
economies at the beginning of the last century.

• It was inducted in to global trade when European traders

reached Japanese shores around the 16th century.

• At this time Japanese civilization was still perceived as

primarily a feudal civilization
 Initiation of Japan in to the Global
Economy
• The Tokugawa Shogunate opened the country to Western commerce and influence
around 1854

• Subsequently the Meiji government heralded the Meiji Restoration era which saw the
emergence of Japan as a global militaristic as well as an economic power.

• Japan leveraged World war I to establish itself as a global power in the absence of its
European competitors

• A large emphasis was given to develop its military capabilities and increase its
geographical influence

• World War II left the Japanese economy in tatters and the once great empire was
wracked by
– Shortages
– Inflation
– Currency Devaluation
 Post War Japan and the Japanese
Economic Miracle
• One of the strongest points about the Japanese culture has been its attitude towards
which is marked by Confucianism
– Loyalty has more significance than benevolence

• Leadership stemmed from the government and businesses looked towards the
government for guidance

• This enabled the Japanese government to exert a greater degree of interventionism in

the development of its businesses

• Some of the other reasons for the Japanese economic miracle include
– High level and quality of investment
– As a later entrant to modernization, was able to avoid certain errors perpetrated by other
economies
– Japanese Labor Force
– High Productivity Growth
•
Twin Asset
Post WW II, Japan employed policies which
Bubble
encouraged people to save their income.
• This led to an increase in the bank deposits
– In turn it made loans and credit easier to obtain
– Japan was running trade surpluses and Yen
appreciated against foreign currencies
– Local companies could invest in capital
resources more easily than their competitors
• This easy money readily available for
investment led to rife speculation
– Nikkei stock exchange hits an all time high
(38915.87)
– Real estate prices hits unheard figures, some as
high as $1 million per sq mt. in Tokyo
• This has been followed by a continuous
slump, prompting the last decade of the
previous century to be known as Japan’s
Lost decade
 Politics in Japan
• The current upheaval in Japanese politics has been the subject of debate in
international circles

• The country has seen 5 prime ministers in the last 5 years and 14 prime minister in
the last 20 years

• The country has been facing a number of problems including

– Bulging budget deficits
– Deflation
– An ailing social security system

• The “Twisted Parliament” currently existing in the country is preventing many

much needed reforms from being enforced

• Many governments have been toppled due to its failure to pass important reforms
through the “Diet”; which is the country’s Bicameral legislature
• A strong economic bio-data both before and after World War II and up until
the mid 80s presented Japan as an economy to emulate

• The world looked at Japan in admiration to identify the miracle behind the
Japanese economic achievements

• This impressive economic growth reversed with the twin asset bubble crisis
of the late 1980s

• This showcased the modus operandi in which Japanese political structures

functioned and highlighted number of policy areas which needed priority
remedial action

• They include
– The much Japanese fiscal policy reforms, given the unprecedented growth of
Japanese debt stock
• The Liberal Democratic Party (LDP) which has been in power for majority of the last
century recognized its authority to govern by adopting policies designed to ensure
high economic growth

• The party tied its fortunes to power by expanding the national economic pie, rather
than trying to take larger slices for itself or for its support base from a pie of fixed
economic size

• Such policies, in times of economic fortunes, would lead to the expansion of the
national economic pie due to its ability to rake in higher revenues for the government

• But at times of economic hardships; continuation of such policies requires aligning

towards deficit financing by issuing more and more debt

• In Japan deficit budgets have become the norm irrespective of whether the economy
is in good shape or in doldrums often as a result of political maneuvering over fiscal
sustainability
• There has been also indications from various
agencies like Standards & Poor’s, that the country
is facing the risk of lowering of its credit rating
• A lower credit rating would raise the borrowing
costs, adding to the country’s budget woes
• This is again being attributed to the Twisted
parliament existent in Japan, which is preventing
the government from reining the debt; which
currently is twice the nation’s GDP
• Apart from the Woes the country faces; it still
ranks 5th out of 41 countries in the Asia Pacific
regions in the 2010 index of economic freedom.
Ranks 19th overall
• The overall freedom to start and close a business
is well protected under Japan’s regulatory
environment
• Starting a business takes 23 days compared to
the world average of 35 days
• Obtaining a business license takes less than the
world average of 18 procedures and 218 days
Bond Market
Introduction
• In early stage of development , government bonds are sold mainly to
the banking sector.
• In year 2006, all these syndicated sales were abolished.
• Currently all the Government bonds are sold through market auctions.
There are no forced sales to the financial institutions.
• Earlier (1970’s) Government bonds were mainly sold to the financial
institutions.
• From 1990s, the MOF started to sell various kinds of government bonds
to the market, namely, short-term, medium-term and long-term.
– Short-term Government bonds are treasury bills which are
redeemed within one year and they are discounted bonds.
– Medium-term Government bonds such as 5 years are mainly sold to
banks. Commercial banks in Japan prefer to hold 4-5 years
Government bonds, since the average maturity of deposits is less
than 5 years.
• The Japanese economy has developed
continuously since the 1950s. There have been
several fluctuations because of two major oil
crises in 1974 and 1979.
• Despite these crises, the Japanese economy did
remarkably well until 1989 when the bubble
burst.

Since the 1990s, the Japanese budget deficit has

been increasing rapidly for a number of reasons:
(i) long-term recession and the decline of tax revenue;
(ii) various tax rate reductions introduced in late 1990s;
(iii) failure of the Keynesian Policy which relies on public
work to enhance economic recovery immediately
after the collapse of the bubbles in 1991;
Government Dependency For
Government Bonds
(iv) an increase in welfare spending such as

medical spending due to the aging population. Thus, the

budget deficit climbed to higher than 170% of GDP from 70%
in 1993, comparable to the level seen in other OECD nations.
Trends in Bond Market
 Huge increase of Japanese Government bonds
in recent years.
 Variety of Japanese Government bonds to
satisfy demand from the market
 Discount bonds
 Fixed-rate coupon bonds
 Floating rate bonds
 Abolished bonds
 JGB for individual investors
 Inflation-indexed bonds
Breakdown by Japan Govt. Bond
holders
Types of Japan Government Bonds
Types of Japan Government Bonds
Bond Yield
 Japan Bond Market
Historical Performance of Japan Bond Market
Improvement Measures

•Buy-back is expanded to include all types of JGBs in January, 2006.

•Interest-rate swap transactions started in January, 2006.

Improvement Measures Cont…
DOING BUSINESS IN JAPAN
 Japan’s Banking Crisis 1991-2005
Background of the Crisis
• One of the direct causes of the banking crisis in Japan was
the bursting of the asset price bubble in the period from
the late 1980s to the early 1990s.
• After 1985 , Japan pursued expansionary fiscal and
monetary policies to counter fears of recession brought
about by the sharp appreciation of the yen.
• A strong yen created a confidence and optimism in the
future of the Japanese economy. This belief—supported by
abundant liquidity and self-fulfilling expectations of ever
rising prices of stocks and land—led to asset price bubbles.
Stock and land prices peaked in December 1989 and March
1991.
 Japan’s Banking Crisis 1991-2005
Causes
• Bank loans were overextended particularly in risky areas with
inadequate supervision and regulation over banks during the
bubble period. Specifically, loan portfolios were concentrated in
property-related businesses such as construction, real estate, and
nonbank financial services.
• Banks were allowed to hold common stock on their balance sheet
and had accumulated sizable unrealized capital gains, boosting their
capital base. The bursting of the stock price bubble reduced these
unrealized capital gains and eroded the value of capital reserves of
many banks.
• The economic slowdown and price deflation in the 1990s also led to
the growing levels of NPLs, especially in the late 1990s and the
early 2000s.
 1991-1997
• Initial policy adopted by the Ministry of Finance (MOF) was intended to protect
ailing banks through regulatory forbearance and other forms of support, while
gaining time for a hoped for recovery of economic growth and asset prices.
• Failure of Toho Sogo Bank in 1991 , followed by failures of small financial
institutions in 1995 and 1996.
• In 1995–1996, the government injected JPY680 billion to deal with jusen,
specialized, nonbank housing loan companies. This policy was unpopular
politically, and the government was heavily criticized for bailing out the nonbank
financial institutions. As nonbank mortgage finance companies, jusen were less
strictly regulated, and thus more aggressive in their lending to real estate-related
small businesses than larger commercial banks during the bubble period.
• Unpopularity of jusen intervention discouraged the MOF from pursuing policies to
use public funds to address bank balance sheet problems.
• Economic growth had slowed down sharply in 1992–1994 following the bursting of
the asset price bubble.
• Growth began to resume in 1995–1997, but the adoption of tight fiscal policy and
the outbreak of the Asian financial crisis sent the economy back to recession. This
fueled the banking crisis in Japan, which became acute in late 1997.
 Banking sector starts to fall apart
• In the fall of 1997, Yamaichi Securities, one of the four largest security houses,
collapsed and a medium-sized one, Sanyo Securities, also failed. These security
houses were not able to obtain short-term funding in the Japanese interbank
market due to their heightened risks as judged by market participants.
• Hokkaido Takushoku Bank, a city bank, became unable to raise funds in the
interbank market and had to announce its discontinuation of business operations
in November 1997. Subsequently, the premium for offshore foreign-currency
interbank loans extended to Japanese banks by foreign banks, called the “Japan
premium”, surged from the fall of 1997 through the spring of 1999.
• Public funds totaling JPY1.8 trillion were injected to the 21 major banks in March
1998 to help banks meet the required capital adequacy standards.
• JPY7.5 trillion more of public funds were injected into 15 banks in March 1999. The
second recapitalization operation encouraged private sector-driven capitalization
and thus improved banks’ capital adequacy ratios and addressed bank NPL
problems.
• 1997–1998 crisis forced the authorities to assess the solvency and soundness of
the balance sheets of individual banks.
• at the time of bank recapitalization in 1998 and 1999, the exact scale of capital
shortage was not accurately recognized by the authorities.
 Recovery Phase 2002-2005
• Large scale reclassification of loans to 149 companies; a quarter of
the “normal” or “need attention” loans examined were reclassified
to bad loans—“bankrupt” or “in danger of bankruptcy” loans.
• As a result of the stringent FSA inspection of bank loan quality, an
enhanced and extensive policy package, Program for Financial
Revival (PFR), was introduced in October 2002.
• Government established a new asset management company, the
Industrial Revitalization Corporation of Japan (IRCJ) in April 2003.
Aim of ICRJ was to promote the restructuring of relatively large and
troubled, but viable, firms by purchasing their loans from secondary
banks .
• Cumulative output that was lost in the three years after the
outbreak of the 1997 banking crisis could be as large as 18% of
GDP.
 Lessons learnt
• Delay in taking decisive action due to following reasons:
1. Expectation that a resumption of economic growth would restore the financial
health of banks.
2. No domestic pressure and no external pressure.
3. Imperfections in accounting and disclosure standards, which enabled financial
institutions to avoid recognizing loan losses.
4. Lack of legal framework

Lessons:
1. Prompt action to gauge the exact amount of loan losses is a critical initial step
2. A government recapitalization operation that involves taxpayer funds is the most
direct policy measure to contain the acute phase of market turmoil
3. Removal of impaired assets from banks’ balance sheets is essential to the
restoration of bank health.
4. Economic stagnation can cause new NPLs to emerge rapidly, and deplete bank
capital.
 US and Japan Crisis
Similarities
(1) The formation and bursting of an asset price bubble, which caused debt levels to
expand too much and then subsequently drop under pressure for deleveraging
(2) Extensive damage to the quality of bank assets caused by a collapse of real estate
prices
(3) Failure of large financial institutions—Yamaichi and two long-term credit banks in
Japan, and Lehman Brothers and other highly-leveraged institutions in the US.
Differences
1. US deleveraging is required for households, whereas in Japan this was required for
firms.
2. In Japan, loans collateralized by real estate →problem developed slowly. In US,
mortgage loans and securitized products →forced the US government to react
quickly
3. Different accounting standards were used. Japan used annual/conventional while
US used quarterly/mark-to-market
4. Impact of crisis – In Japan , purely domestic while the US crisis spread rapidly to the
global markets
Interest rates in Japan
Loans and Deposits
 Shift from Savings to Investment
• Investment products’ share of household financial assets has been
growing, albeit partly in response to market factors.
• Between 2002 and 2007, investment products’ (i.e., investment
trusts, JGBs, equities) share of household financial assets increased
from 13% to 18%
• Savings deposits’ share decreased from 54% to 51%.
• Banks are playing a major role in selling investment products to the
public. They are actively marketing investment trusts and annuities,
among other products, capitalizing on their large customer bases
and branch networks.
• Over the decade since banks began selling investment trusts,
investment trusts’ aggregate assets have doubled. Investment trust
units sold by banks account for half of current investment trust
assets.
Balance of Payment ,Japan
 Summary
• Japan's current account surplus decreased in 2009 for the second
consecutive year to 13.3 trillion yen, down from 16.4 trillion yen in
2008, mainly due to a decrease in the income surplus.
• The capital and financial account deficit (net outflow) decreased to
12.7 trillion yen in 2009, down from 18.4 trillion yen in 2008.
• Reserve assets continued to increase, rising by 2.5 trillion yen in
2009 compared to an increase of 3.2 trillion yen in 2008.In balance
of payments statistics, the following relationship holds true at all
times:
• Current account + capital and financial account + changes in
reserve assets + errors and omissions = 0.
• Japan's balance of payments shows that the current account
surplus earned is mirrored by reverse flows abroad in the form of
a capital and financial account deficit (outflows) and an increase in
reserve assets.
Current Account
Goods
EXPORTS
Imports
Exports and Imports by currency
settlement
Services
Income
Outward direct investment by residents decreased significantly, registering a net
outflow of 7.0 trillion yen from 13.2 trillion yen in 2008, when it hit a record high.
•lack of large-scale transactions
•a plunge in reinvested earnings reflecting the deteriorating business performance
of overseas subsidiaries.

Inward direct investment by nonresidents also decreased significantly, registering

a net inflow of 1.1 trillion yen, down from 2.5 trillion yen in the previous year.
•foreign companies clearly refrained from making direct investments due to the
global economic slowdown

Outward portfolio investment recorded an increase in net purchases (outflows) to

16.3 trillion yen in 2009 from 14.0 trillion yen in 2008.
Inward portfolio investment recorded a decrease in net sales (outflows) to 4.8
trillion yen in 2009 from 10.3 trillion yen in 2008. As a result, there continued to be
a large net outflow of portfolio investment amounting to 21.1 trillion
yen compared with 24.3 trillion yen in the previous year.
Net purchases (outflows) of equity securities decreased to 3.0 trillion yen , down
from 6.4 trillion yen , due to a decrease in purchases of foreign equity securities by
public and private pension funds through banks' trust accounts.
 Household
• Since autumn 2008, faced with major declines in demand, companies
have reduced the number of their personnel, and this has resulted in a
marked deterioration in conditions in the employment environment.
Although the feeling among corporations that they have an excess of
personnel is being relieved by progress toward employment adjustments,
it is still strong, and corporations are maintaining a cautious stance
toward hiring new personnel. For this reason, the unemployment rate is
believed likely to remain at a high level.
• As a result of the implementation of economic policies that incorporate
measures to promote the purchases of eco-friendly products, consumer
spending, principally for durable goods, is continuing to increase.
Although consumer spending may decline temporarily in the latter half
of fiscal 2010, as the effects of economic policies run their course,
consumption is expected to improve in fiscal 2011 as the income
environment improves, influenced by the payment of the full amount of
government child allowances and other factors.
 Household
• In the area of residential investment, although the
sons and daughters of the baby-boom generation have
been purchasing their first homes, the market has
unavoidably stagnated since the revision in Japan’s
building code in June 2007. Even after the effects of
the building code revision diminished, housing sales
have remained lackluster because of expectations that
home prices may decline further and the severity of
the employment environment. In addition, the slower
growth in the number of households in the medium
term will have a restraining effect on residential
investment.
 Forecasts for Prices and Financial
Markets
• The sharp declines experienced previously in the prices of raw materials,
especially crude oil and metals, have ended, and prices of these commodities
are rising again, thus boosting some prices. However, in the medium term,
considerations of supply capacity and expansion in demand in China and
other newly emerging economies suggest that inflationary pressures
upstream and deflationary pressures on industrial and other final products
downstream will persist.
• Among domestic corporate prices, the prices of petroleum products and
other items that are influenced by international commodity market prices
have begun to rise, but prices of other materials are continuing to show
weakness, and prices of machinery are declining. Although the trends toward
firming and increases in these prices may continue going forward, the pace of
increase is expected to be moderate because of the weak recovery
momentum in the domestic economy and other factors. The outlook is for the
decline in consumer prices to bottom out after the beginning of fiscal 2011,
but in the interim it may continue to decline because of the strong downward
pressure on sales prices to final consumers.
 Forecasts for Prices and Financial
Markets
• Regarding monetary policy, the lifting of quantitative easing in
March 2006 set in motion the process of normalizing monetary
policy to raise interest rates in Japan from their excessively low
levels. However, as a result of the turbulence in financial markets
triggered by the subprime loan crisis and the recognition of the risk
of a downturn in the domestic and overseas economies, in fall 2008
and onward, measures were implemented to ease monetary
policy. In October 2009, temporary measures to ease monetary
policy were retracted, while in December 2009, strong policies
were adopted to ease monetary policy again based on the stance
of not tolerating declines in consumer prices. For the time being,
the Bank of Japan is expected to continue its stance of easing
monetary policy.
• Since a strong momentum in the economy is lacking, and short-
term interest rates are remaining stable at low levels, long-term
interest rates are also expected to remain low.
 Trends in Overseas Economies
• The world economy is continuing to show signs of improvement. In the October-to-December
quarter of 2009, the United States and the countries of Europe continued to report positive growth
(compared with the previous quarter), and growth in China accelerated to double-digit levels for the
first time in 18 months.
• The outlook is for recovery in the world economy to continue in 2010. Consumer spending in the
United States is showing clear improvement, and, in China, even though there is concern about a
tightening of monetary policy, there is a strong possibility that high growth rates will continue.
However, improvement in employment conditions in Europe may be delayed, and the outlook is for
a slow pace of recovery because of the deterioration in the financial positions of certain countries.
• As the world economy recovers, Japan’s exports are increasing. By region, although Japan’s exports
to the United States and Europe are rising gradually, exports to countries in Asia are expanding at a
brisk pace. These exports to the rest of Asia are expected to be a driving force, and the outlook is
for exports to continue on a rising trend going forward.
• The surplus generated in the international income account by Japan’s net overseas assets will be
influenced to some extent by world economic conditions but is expected to remain steady. As the
recovery in the trade surplus continues to be moderate, the surplus in the income account is likely
to come to occupy a larger share of the current account surplus.
 Demography: Economic Impacts of Population Aging in Japan
• Given the demographic outlook and reasonable economic parameters, the general long-term
picture is one of slowing per capita growth, a declining national saving rate, rising social
contribution rates (subject to the assumption of no change in labor force participation
rates or the calculation of pension, health, and long-term care benefits), and reduction in
net foreign assets. While disposable income of both the elderly and the working-age
population are expected to rise (i.e., living standards will continue to improve), it will
translate into an eventual long-term decline in the living standards of the young relative to
those of the elderly
Japan :A success story
10 Advantages to Investing in Japan
1. Japan - A Market of Enormous Potential
• Japan is an enormous market, one of the world’s largest in terms
of economic scale.
• Japan’s regions also offer an attractive market and extensive business
opportunities.
2. Sophisticated Consumers with High Purchasing
Power and Discerning Tastes
 Japan is often seen as a superb test market for the introduction of new
global products and services.
 Japan’s figures for final household consumption expenditure are
among the highest for the major developed nations. The level of
discretionary expenditure is high and consumer demand is substantial,
with a significant share of expenditure occurring in the areas of
education and entertainment, transport, and communications.
 Japan’s 120 million citizens hold personal financial assets of
approximately 1,500 trillion yen, adding up to considerable potential
buying power.
3. Promising Markets and Industries
• Brief introduction to four sectors which are seen to have signifi-cant potential
for future growth, and which have attracted considerable interest from
companies in Japan and overseas.
a. Information and communication technology (ICT) is an area in which Japan,
backed by its world leading technological capability, is strong in all stages of
the product development process, from R&D to design and production. The
scale of the market is enormous, and it is growing steadily.

b. MEDICAL & HEALTH CARE-the market for care, nursing and welfare-related
services is also expected to grow steadily.
c. AUTOMOTIVE PARTS
• Japan’s automotive industry is a global leader in terms of number of units
manufactured and marketed, percentage of the world market, technology
implemented, etc.
• Japan also offers foreign companies the chance to collaborate with these
Japanese companies, which can lead to further expansion of their business
overseas and provide considerable opportunities for innovation.

d. ENVIRONMENT
• Japan’s environment-related market has been expanding rapidly since the mid-
1990s. There has been considerable growth in environmentally friendly
products and services in response both to the establishment of environmental
laws and to an increasing concern towards global warming and other
environmental problems.
4. Home of the World’s Top Companies
• Japan is home to many of the world’s top companies. These companies
have established bases throughout the world and continue to expand their
procurement, production and sales networks
• Advanced technologies originating in Japan have spread around the globe,
and Japan’s technological sophistication and innovativeness are admired
throughout the world.
5. SMEs Possess Unique Technologies
• Japan hosts a large number of small and medium-sized enterprises (SMEs)
which, while perhaps small in scale, are tremendously innovative.
• Many of these SMEs work in areas of basic production that support the
international competitiveness of major companies, supplying, for example,
equipment and parts that rely on high-precision machining technologies.
• Other SMEs may possess unique technologies, enabling them to occupy
niches that major companies find difficult to enter.
• For foreign companies seeking to enter the Japanese market, partnerships
with companies of this type have numerous merits, including offering them
the ability to develop products that fit the market, to boost their
technological capacity, and to open up markets and sales channels.
6. Innovation Ushering in the Future
• Japan’s expenditure on R&D as a percentage of GDP is the highest of any
advanced nation
• Amid the ongoing globalization of business activities, efforts to create new
products and services and increase added value through business alliances
that transcend the borders between nations and the boundaries between
different industries will be vital to business enterprises. With its world-
leading technologies and commitment to R&D, Japan possesses the ideal
conditions to be a center of innovation.
7. A Gateway to the Asian Market
• As the East Asian market grows rapidly, the economic integration between
countries in the region continues to strengthen. The sustained high growth
of the region is increasing its influence on the world economy
• Japan is becoming ever more important for companies from around the
world as a location for regional headquarters and R&D bases to support
their push into Asia.
• Due to the rapid economic growth of East Asia, the region’s share of the
world GDP has expanded significantly, where Japan continues to have a
strong presence.
8. Foreign Companies Expanding Business in Japan
• Japan is a business destination that offers abundant potential for foreign
enterprises to increase their profit.
• The number of firms seeking to expand their businesses in Japan with a long-
term investment strategy is steadily increasing.
• The value of foreign direct investment in Japan has grown steadily in recent
years, and a large number of foreign companies have successfully entered the
Japanese market.
9. Mature Investment Infrastructure
• Japan’s industrial structure and business environment are similar to those
of Europe and the US, and this makes it simpler for foreign companies to
establish themselves here and to expand their businesses within the
country than it is in other Asian countries.
• The Japanese government is also making considerable efforts to improve
the investment environment.
• FDI is flowing into Japan faster than ever before, and the number of M&As
is also increasing rapidly. Japan offers a mature and stable business
environment that makes it ideal as a base for global business.
10. A Secure, Comfortable Living Environment
• Japan possesses all the elements required for a comfortable life, including
stable infrastructure, clean and safe urban environments, and efficient
social systems.
• Japan welcomes its guests with a secure and comfortable life-style, rich
with the potential to enjoy the diversity and beauty of nature in all its
seasonal changes.
• Food in Japan is also relatively inexpensive when compared with prices in
major cities around the world, and it is easy to find imported food-stuffs
and daily items.
• Japan boasts a public infrastructure and a level of public safety and order
that are unparalleled in most of Asia. The nation also provides an
outstanding living environment from the perspectives of health care,
education and leisure.
 4 phases of Japan economy
1. Post-war reconstruction
• After World War II, the Japanese economy struggled to recover.
the Japanese government adopted the priority production
system, focusing on the production of steel and coal, expecting
spillover effects on other sectors of the economy
• Three major structural reforms that is, the dissolution of
"Zaibatsu," or financial conglomerates, reform of agricultural
lands, and labor reform - these policies paved the way for the
high economic growth that followed.

2. High growth
• During the period from 1956 to 1972, the economy grew on average
9.3 percent in real terms. These years are called the "high growth
period.“
• Exports also increased at faster paces, thanks to the modernization of
production equipment and cost reduction by new technologies. 
3. Stable economic growth
• In the early 1970s, the era of high economic growth ended, due to two
external shocks - the Nixon Shock and the first oil crisis - and the era of
stable economic growth of around 5% started.
• Nixon Shock - On August 15, 1971, US President Nixon unilaterally
declared the end of the fixed exchange rate system, even though major
economies had been consulting with each other to deal with the
imbalances among the countries. This is called the "Nixon Shock."
• First Oil Crisis - In October 1973, the Middle East War led to the first oil
crisis. Even before the oil crisis, Japan was suffering from two-digit
inflation due to the over-heating of the economy.
• The sharp rise in oil prices came on top of it, resulting in a serious inflation
of over 20% for the first time since the war. The oil crisis caused panic in
the society, as Japan's dependency ratio on oil at that time was by far the
highest in history.
4. The post-bubble
• Asian currency crisis - It broke out in Thailand in July 1997. In an effort to
solve the Thai crisis, the IMF provided US$ 4 billion, with Asian countries
providing US$ 11 billion, including US$ 4 billion from Japan. Nonetheless,
the crisis spread to other Asian countries, including Indonesia, Korea,
Malaysia, and the Philippines.
• Japan made the largest contributions in the world in support of Asia's
economic recovery, including US$ 30 billion under the New Miyazawa
Initiative 
• Domestic Financial Crisis - Japan was hit by a serious domestic financial
crisis. Four major financial institutions went bankruptcy within just one
month toward the end of 1997 and economy plunged.
• In 1998, the economy recorded negative growth for the second time after
the war.
Potential contribution of Japan to
Asian recovery
• Japan has undoubtedly made a crucial contribution in economic recovery
in East Asia as well as in the world economy as a whole. It has so far
adopted various measures, including fiscal and monetary stimuli to revive
economic growth.
• Since the outbreak of the crisis in East Asia, Japan has provided some $40
billion of financing to the region, including $28 billion long-term financing.
Much of the latter has been chanelled through the IMF and has been used
as part of bailout operations
• It calls on the Export- Import Bank of Japan to guarantee the debts of
Asian corporations and banks, to offer subsidies on interest payments, to
buy Asian government bonds to provide countries with more foreign
currency, and to provide additional yen- denominated loans.
 Reference
• Japan’s Debt Volcano and Structural weakness
– The CBS business network
• 2010 Index of Economic Freedom: The
Heritage Foundation and Wall Street Journal
• Bond Market Development in Japan 2008
Naoyuki Yoshino*
• Insights on Japan’s Bond Market| January
2010 (MSCI Barra Research)