Japan’s ‘lost decade’ and its ‘lessons’

What is the ‘Japan’s Lost Decade’?

   What is ‘lost decade’ of Japan? First of all, we must consider and define the lost decade of Japan. After going into Heisei, a decade or more have passed. ‘Heisei’ was started by Emperor’s Showa death and the now top Emperor’s accession to the throne. Originally, it and economic flows are completely different phenomena.
   However, Japanese economy of Heisei looks completely different to Showa’s. So, we decide that we define the Japan’s lost decade as the decade history of Heisei depression. And we can therefore define the decade as ‘Bubble Economy’ and ‘its Disintegration’.

Bubble’s Disintegration and Great Recession

Generating of a bubble economy

   Generally speaking, a bubble economy is the condition that a stock-price or a land-price is distended than those original values. The bubble economy which can say it as “a crazy feast” may be, in a sense, the inescapable phenomenon of a capitalistic economy.
   The bubble in Heisei and its collapse became the big thing of a damage which postwar Japan experiences for the first time. First, I want to see from generation of this bubble. The beginning goes back to the Plaza Accord on September 22, 1985. In the Plaza Accord, the finance minister of five advanced nations has agreed to perform coordinated intervention to an exchange market. It brought a strong yen to Japanese economy and caused so-called Yen-Appreciation Deflation. At that time, the stock price began the sudden rise. And the recovery from deflation caused by yen appreciation pulled up the stock price further, and became the starting point of the bubble.
   Then, people were astonished by the rise of a stock price, and they competitively invested their money in stocks. And even a domestic housewife thronged into a securities firm and hunted for the stocks. This amateur group’s entry made a stock price rise sharply furthermore. In those days, the word “financial engineering” became a vogue word.

Conclusion ― The 21st century Japan economy which reform produces

We have to reform for Japan in the 21st century.
   The government needs to perform not a demand side policy but a supply side policy.
   Which do you like The Sweet Medicines or The Painful Operations? The former is policies, such as a public investment and a tax cut, and the latter is reform. However, the public investment and the tax cut are demand side managements. Although they are effective in the short term, it is ineffective in the long run. And if it is continued, the plus effect will be lost increasingly, and the minus effect by accumulation of national bond issue becomes conspicuous.
   There is structure reform against the demand side policy. It’s a supply side policy. And it tends to strengthen economic essence. This causes deflation rather than inflation in the short term. If annual expenditure curtailment and a tax increase are performed for a fiscal structural reform, naturally it will cause deflation. Moreover, if it performs social security reform, people increase their savings for future. This also causes deflation. Deregulation, administration reform, ‘accounting big-bang’, all of them cause deflation. However, in the long run, these reduce a national tax burden, make the range of a private sector economic activity expand, extend a business chance, and activate the economy.
   It turns out from the beginning that structural reform is a deflation factor in the short term. The reform cannot be done eternally if you say “Since it is a deflation factor, it should not be performed at the time of the depression”.
   American President Reagan and British Prime Minister Thatcher eliminated many criticism, they accomplished a beginning’s policy, and pulled out today’s economical revival. Reform of Reagan or Thatcher caused a lot of layoff and confusion of domestic economy, and was disreputable at the time. However, the foundation of the activity of today’s both countries was just made at this time. Also in Japan, the Matsukata fiscal policy which made the foundation of development of Meiji, and the Dodge Line which made the foundation of postwar high economic growth were deflation policies.
   Although the ‘lost decade’ was symbolized as the depression after bubble business and the collapse of the ‘bubble’ economy, the essence is found in liquidation of the Japanese type system which has been supporting its economy.
   There are many difficulties in reform at the time of depression. However, we must do the reform. In order to secure existence of the Japanese economy in the 21st century, we have to make Heisei into “the time of reform.”