Causes of Japanese Structural Deflation and How Overcome Long-term Deflation

1.       Introduction

The Japanese economy has been underperforming for more than a decade. The average growth rate of real GDP over the past 12 years has been just above 1 percent, and the nominal GDP has been shrinking since 1997 due to deflation. In order to stimulate the stagnant economy, the government has cut taxes and increased expenditures. As a result the government debt/GDP ratio has risen to an unprecedented level for an advanced country in peacetime. The CPI has been declining since 1998, while the GDP deflator has been declining since 1995. Stock prices and land prices have been declining for the decade. There is no doubt that the economy is in deflation. The consumption tax rate increase and repeal of income tax cut in April 1997 is often regarded as a fiscal policy mistake. Slow structural reform in regulated sectors is another problem for the Japanese economy. The most likely cause for deflation in Japan is a failure of monetary policy, since inflation or deflation is ultimately a monetary phenomenon. The Bank of Japan (BOJ) was unable to stop the inflation rate from turning negative, despite its various efforts. The Bank of Japan’s actions were too little too late, at least in retrospect, in preventing deflation from emerging and fighting out of deflation.

How the Japanese Economy Could Overcome the Oil Crisis in the 1970s

Myo Min Thein, 2016, International University of Japan

Introduction
In the 1970s, the Japanese economy could overcome the oil crisis and successfully achieved high economy growth. So, what features are included in the behind of the Japanese economy development? In the case, I really emphasized the role of actors which are not only the Japanese government but also private sectors how much influenced and how to try the best for their economy growth in that period. During before the bubble state and after World War II, it generally consists of three postwar periods in Japan. There are “economy under the occupation (1945-1950), high economic growth (1951-1972), and oil crisis and adjustment period (1973-1985)” (Nakamura, 2004). So, what are contributed to the extraordinary performance of the Japanese economy during before and after the oil crisis?

            During the 1950s to 60s, due to the high economic growth of Japan, the Japanese economy strengthened supply-side economy and the government of Japan designed the mid-term and long-term strategy to guide vital investment activities in the private sectors, and it also called “post-war Japanese high growth miracle” (Katz, 1998). Especially, the government of Japan tried to handle the large demand for the Japanese products by recognized groups among the companies. Nevertheless, the high growth era was terminated in the early 1970s because of the Nixon shock and oil crisis. In 1971, the consequences of the Nixon shock, the US faced to hardly maintain their US Dollar base gold standard and also the international monetary system has shifted to the full-floating system. Therefore, the Japanese currency rate also increasingly appreciated from 36 yen/$ to 240 yen/$ during 1972 to 1985 shown in figure 4. Therefore, what I found a result that the export product of the Japan have been lost and it obviously faced price competition in the international market. Consequently, Japanese government terminated the long-term development plans and introduced efficient income policy in order to improve the hyperinflation.