THE FINANCIAL CRISIS OF 2007- 09, EFFECT ON THE ECONOMY OF JAPAN
Japan is among one of the most rapidly growing economies in the world. The economy is primarily dependent upon the service sector which is highly developed followed by the manufacturing and industry sector. The country is rich in new and innovative technologies which benefit it to endeavour in the competitive era. The overall GDP of Japan in the year 2012 was $5960 billion and the purchasing power parity was $4.617 trilllion representing the stable growth of the economy (Japan Econony 2013)
The economy of Japan experienced a downturn during the year 2007 – 09 when the global economic crisis affected the economic stature of most nations around the world. The exposure to international trade and the extreme pressure of maintaining the role of an intermediary in the financial transactions across nations pushed the economy of Japan towards recession. Although, the Japanese economy was among the last to be hit by recession owing to its specialization in manufacturing goods which are less sensitive to the change in business cycle, less intervention and dependency on small domestic borrowers in the private sectors other than finance, and flexible rules for domestic lending housing market (OECD, 2010). The Government of Japan was much worried about the long lasting effects of the financial crisis rather than the short and substantial effects. The aftermath of the financial crisis on the economy of Japan included: * Steep rise in the unemployment and decline in the number of immigrants. * Contraction of the financial market led to decline in the interest of foreign investors. * The GDP growth contracted to 7.4 percent from 9.6 percent. * The GDP surplus declined to 2.8 percent in 2008 from 15 percent in 2006 and 9 percent in 2007. * The prices of equity declined substantially affecting the asset management business. * The financial institutions in Japan were largely involved in investment banking which raised concerns as they experienced heavy loss in the trading of securities. * The price of commodities increased which had resulted in adverse effect on the inflation rate. * The downfall of the US economy had severe consequences on the imports and exports across the globe. * The increment in credit risk premiums increased the cost of finance for organizations and reduced their interest to invest and contribute towards strengthening the economy. The government of Japan and the Central bank implemented extensive measures to support the Master trust bank of Japan – largest bank in the nation, to contain the effect of the financial crisis. The financial crisis has created havoc in the interbank lending market. In order to save the economy from further downturn the Government of Japan decided to support the liquidity in the market by executing following measures:
* It reduced the interest rates close to zero on repurchase manoeuvres. * The bank controlled further appreciation in the value of Yen to boost the economy. * Contributed immensely towards inhibition of the financial crisis on the interbank transactions. * The debt break rule was deployed by the government which reduced the Government debt from 46.5 percent in 2007 to 44.3 percent in 2008. (Wirtschaftskammer 2008) * The monetary policy of Japan was designed with utmost care which provided space to execute economic stimulus in the year 2009 - 10 and helped to improve the GDP to 0.6 percent.( The Japan Economy Resilience to crisis, 2012) * The vigorous labour market helped to minimize the negative effects of financial crisis. To summarize, the global financial crisis had severe effects on the Japanese economy but due to the effective remedial policies implemented by the Government of Japan and the Japanese national bank to reduce government debt, hold the appreciation of the Yen and adopting an expansionary monetary policy facilitated the nation to overcome...
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