Japanese Economy: A Menace Turned Cold

Japan has everything from hooking anime and manga to appetizing ramen and sushi. But this stunning place has quite a history to itself. The country today known for traditional arts, was known for its cruelty and brutality in the mid-1940s.

During the days of warfare, Japan had an army so determined, that it turned the tide of war many times. But they ended up drawing the short end of the stick after WW2 when they tragically lost the war resulting in millions of lives lost. The Hiroshima and Nagasaki massacre brought war to a quick end at an unbearable cost.

The USA then decided not to colonize Japan but utilize soft power by setting up a puppet government, banning japan from owning a military, along with other restrictions. Although, Japan does maintain a relatively small Self-Defence force.

After the war, the USA understood the strategic importance of Japan and by early 1950s invested 2.2 billion USD equivalent to 18 billion USD, adjusted inflation. This triggered a growth spree and within roughly 20 years Japan dominated the manufacturing sector to the extent of standing in the second position in global manufacturing output behind the USA till 2010 when later China surpassed Japan.

Tokyo Olympics of 1964 became an iconic step for the Japanese economy as they strategically utilized it to introduce Japan as a technology hub and efficiency-driven economy when the first usage of computers to keep statistics, Bullet trains, etc were introduced.

Japan's cutting-edge technology and cheap products led to the mindset of the masses inclined towards thinking that the Yen is undervalued so when in 1971 when the Bretton-Woods System was abolished – it started floating from around 240 yen to 1 USD but it peaked at around 120 late 1980s caused by the Plaza Accord.

But the growth started slowing down as numbers came down, leading to an impulsive step of removing taxes on the capital gains of the stock market. This step led the huge Japanese companies with massive cash reserves to enter the market for profits and promoted speculation.

This triggered a cycle where encouraged masses and corporates entered the market and started investing in shares of other large companies that did the same with other companies. This led to an increased demand which caused the prices to inflate and the valuation of these corporates skyrocketed.

The vicious cycle led to uncontrollable consequences for the Japanese Economy.

Increased money supply and credit income led to so much currency in the system that Japan's stock market was at its all-time high of 38957.44 pts in 1989. The real estate market also witnessed a similar case when the bubble led to the entirety of Japan's real estate market to be 4 times the size of the entirety of the USA market.

Fun fact- The value of the Imperial Palace of Japan was equivalent to the value of the entirety of California.

However, this overheated economy which almost became a threat to the USA crashed under its own weight when monetary easing policies weren't able to keep up with the rapid expansion grounded on massive speculations regarding the prices of the assets in the country this later triggered "The lost decade" of Japan when the Nikkei fell to around 13,000 pts nearly by a third. Japan suffered massive deflation, an extended period of Stagnation, and a Depression. The economy showed signs of recovery in 2007 but fell again after the Global Financial Crisis of 2008.

According to you which other country showed similar patterns?

Excelsior Outllook