Impacts of Financial Crisis on Japan

Topics: Monetary policy, Japan, Macroeconomics Pages: 14 (5315 words) Published: October 29, 2012
1.0 Introduction
This is a project that explains and describes why and how Japan was affected by the financial crisis. As we know, there were a lot of countries influenced by the global finance crisis in the 1990s and 2008-2012s. Japan was experienced a financial crisis in 1990s following by asset bubble of unprecedented proportions from 1985 to 19900. From 1990, the financial crisis began with a plunge in the Nikkei Stock Index. In 1992, the tumble and decrease in the land price. Since 1980s, financial crisis has struck with many countries such as Russia, numerous countries in East Asia, several majors Latin American countries and African countries. (Amyx, 2004) While in the financial crisis hit Japan in 2008 and 2009, the Tokyo stock market was fallen. The Nikkei and Topix index recorded record one day falls, declines 4 percent for the overall in one day on several occasions. The global crisis began in the United Sates with the problem in the housing market. Resident of United States was unable to pay back their loans in the summer of 2007 and face with collapse of Lehman Brothers security firm in September 2008. Exports were declines almost 50 percent in the early 2009 as demand for Japanese cars and electronics. Aside from the part, unemployment rate was increased in these years. Many of the people lost their jobs. In some cases, some workers who live in company dormitories were told to clean their dormitory and leave when their jobs were terminated. (Hays, 2011) In this project, some of the topics about financial crisis on Japan was suggested and discussed between them. Mostly of them are discuss why and how Japan affected by the financial crisis. Did the macroeconomic policy mistakes and effect of globalization affect financial crisis? Did the financial crisis affect the loan in Japan? Economy of the Japan suffered because it relies heavily on exports? Did exchange rate in Japan affect by financial crisis? All of the topics and questions above would be explained and discuss in the following pages. In this project, we have to carried out the topics that mentioned above be an example or a fact that show the impacts of financial crisis on Japan and how financial began.

2.0 Contents and Topics
2.1 Macroeconomic Policy Mistakes
Macroeconomic policy mismanagement has affected to Japan's economic performance during 1990's and it has made it difficult to resolve ongoing bank and financial mess. Five major macroeconomic policy mistakes have been made by Japanese government (Ministry of Finance) between 1988 and 1998. Policy mistake have been happened and it cause by two dimension which include size, timing, and degree of commitment when authorities undertook demand stimulus or restraint and another was the growing imbalance between the use of fiscal policy and monetary policy. Since 1980, fiscal policy was single-minded pursuit of budget deficit reduction & budget surplus creation and the responsibility for compensatory macro policy will fell heavily and excessively on the use of monetary policy instruments. In 1986, price of oil have sharp declining, yen is more appreciated than expected, response of sole policy was monetary stimulus and economic growth are more slowed than desired. Interest rates were reduced to postwar lows and money supply was expanded while MoF persisted in its efforts to reduce the budget deficit. That policy succeeded in accelerating economic growth. But, problem have occur which is the policy was continued for too long period, at the least fueling and some would argue creating the stock and real estate bubbles of 1988 and 1980. It was the first macroeconomic mistake happened. So, Bank of Japan has begun to raise interest rates sharply in a series, puncturing the bubbles, leading to slowdown eventual economic growth and stagnation. Monetary and fiscal policy sooner was in not easing and more forcefully was the second mistake in the early 1990's. The authorities saw the downturn as primarily a...

References: 5.0 Appendixes
Japanese Economy Approaches Meltdown (2010)
Amiti, M., & E.Weinstein, D. (2009, December 23). Exports and financial shocks: New evidence from Japan. Retrieved April 11, 2012, from VOX:
Amyx, J
Bong Han Kim, H. a. (2011). Auburn University Department of Economics Working Paper Series. Reassessing the Link between the Japanese Yen and Emerging Asian Currencies, 1-36.
E. Weinstein, D. (2009, December 23). Exports and financial shocks: Newevidence from Japan. Retrieved April 4, 2012, from VOX:
Hays, J
Horiuchi, A. (1996). An Evaluation of Japanese Financial Liberalization. A Case Study of Corporate Bond Markets, 167-192.
Hutchison, M. (2005). Policy Options For Japan. Macro/Financial Issues and International Economic Relations , 40-62.
Kuttner, K. N. (2001). Lesson For Macroeconomic Policy From Japan. The Great Recession , 93-175.
Lim, T. W. (2009). Combating the Global Economic Crisis: Japan 's Policies and Politics.
Ogawa, E
Smitka, M. (2003). Japanese Macroeconomic Dilemmas. Implication of Demographics for Growth and Stability , 3-41.
Tokuoka, K. (2010, April 8). Japan 's debt-ridden economy. Retrieved April 29, 2012, from The Economist:
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