The Bubble Economy & Japan’s Lost Decade

1. The Bubble Economy & Japan’s Lost Decade Jin Zhang Jasmine Avgerakis Souphalak Souksavath

2. The Lost Decade • Background and preliminary events • Japan’s lost decade  • Lesson’s learned

3. Japan in the 1980’s • Plaza Agreement -> Appreciation of Yen • Drastic decline in exports • 1984-1986 Endaka Recession • Tax cuts • 5 trillion yen public works • Loose monetary policy High trade surplus

4. Japan in the 1980’s • Intensified bullish expectations • Aggressive behavior of financial institutions • Progress of financial deregulation • Inadequate risk management of financial institutions • Taxation and regulations biased towards accelerating the rise in land prices • Overconfidence and euphoria • Overconcentration of economic functions in Tokyo, and Tokyo becoming an international financial centre

5. Japan in the 1980’s 1) Rapid increase in asset prices 2) An overheating economy Expansion in monetary supply & credit • Bubble Period 1987-1990 coexistence of 3 factors

6. Japan in the 1980’s 1990 The Lost decade

8. The Lost Decade • Dramatic decline in GDP growth • Sharp drop in Nikkei 225 stock prices • Up to 70% decrease in land value • Continued appreciation of Yen & deflated prices 1990-2001

9. The Lost Decade GDP 6% to 0% GDP

10. The Lost Decade Nikkei lost 60%, land lost 70% value Nikkei 225 / Land Prices

11. The Lost Decade CPI Index

12. The Lost Decade • Monetary policy: expansion, low interest rate 6% -> 2.5% and deflation • Fiscal policies: Increase government spending, First injection 1992-93 and Second 1997-98 • Stable 2% economic growth for 5 consecutive years. • Restructured banking industry 2001-03 • Economy remained stagnate Steps to Combat

13. The Lost Decade

14. The Lost Decade • Headless pyramid / lack of leadership • Need concensus • Aversion to risk / like predictibility • Keiritsu • Blame game Cultural Explanation

15. LessonsLearned Different Nations, Different Prospective!

16. LessonsLearned - US

17. LessonsLearned - US • Prompt monetary and fiscal policies are necessary but not sufficient • Do not allow deflation to take hold • Avoid the temptation to raise taxes in the midst of a rapid economic slowdown driven by deteriorating credit conditions An economic cycle driven by a collapse for an asset (land or housing) to which the banking system is heavily exposed is a dangerous beast

18. LessonsLearned - China • Should China be worried? • Real estate boom • High GDP growth • Trade surplus • Artificially low exchange rate

19. LessonsLearned - China A country should discreetly calculate chances, scope and affordability when deciding on a revaluation of its currency A country should take measures to prevent major foreign trade and investment risks

20. Jeff’sThreeTakeAway Points • History repeats itself • It is important to see things from different prospective • Globalization adds to the complexity

21. Conclusion Has Japanese business culture changed? Have they learned any lessons and made changes? Have we learned from their example?

22. ? Thank you

23. The Lost Decade Unemployment