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Japan's lost two decades:
Lessons to Today's Euro Crisis?
March, 2012
YOSHII, Masahiko
President, EUIJ-Kansai
Graduate School of Economics,
Kobe University, Japan
[email protected]
1
%
tril. yen
540
10
8
520
6
500
4
480
2
460
0
-2
440
-4
420
-6
400
-8
1990
1992
1994
1996
nominal GDP
(tril. yen)
1998
2000
2002
2004
nominal GDP growth
2006
2008
2010
real GDP growth
2
3
What have been discussed?
• How to solve debt problems
• Recovery
– Demand Side: fiscal and/or monetary policies
– Supply Side: raising productivities, structural
reform
• Influences of the lost (two) decade(s)
– Japanese economic system
– fast aging in Japan
4
Bubble Era: 1987-1991
• Land Price
• Stock Exchange Market
• Capital Gain/Loss
5
Why the Bubble happened?
• low interest rates and excess liquidity after the
Plaza Accord in 1985
• financial liberalization (CD, warrant bonds…)
• expectation of Tokyo to become the financial
center in Asia
• band wagon effects
6
Plaza Accord
7
Land Price
Japan
1980
1985
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
H
9.9
1.8
9.2
7.4
6.8
13.2
2.7
-3.8
-3.6
-1.2
-0.9
-1.3
-0.7
-1.4
-2.7
-2.9
-3.3
C
6.7
3.0
15.0
8.0
7.5
13.4
3.4
-4.9
-7.7
-6.7
-6.9
-6.9
-5.1
-5.2
-6.6
-6.3
-6.6
Tokyo
H
18.0
2.0
57.1
24.1
2.7
11.0
-1.0
-12.7
-12.3
-5.0
-3.3
-5.0
-2.9
-4.4
-7.3
-6.7
-5.8
C
11.2
8.6
76.1
15.8
1.9
5.6
-0.3
-12.5
-20.5
-18.0
-16.9
-16.3
-10.6
-8.4
-10.3
-9.0
-7.6
Osaka
H
13.3
2.7
5.7
26.9
37.3
48.2
-15.3
-22.8
-12.1
-3.5
-3.0
-3.9
-1.5
-2.7
-6.2
-6.5
-7.5
C
9.2
5.0
19.9
36.4
36.1
39.7
-8.9
-23.1
-21.4
-16.7
-16.4
-13.1
-7.8
-7.3
-10.6
-11.3
-11.0
8
Stock Exchange Market
Tokyo Stock Market (1st part)
Average number of Average amount of
stock selling / buing stock selling / buing
per day (mil units)
per day (bil yen)
Nikkei
Average
(yen)
1985
1988
1989
1990
1992
415
1,021
877
484
265
267.4
1,024.70
1,308.50
716.7
238.4
12,565
27,038
34,058
29,437
18,108
2001
811
812375
10,542
9,777
(02 Mar)
2012
peak: 38,915 yen (12/1989)
9
Capital Gain/Loss
1985
1986
1987
1988
1989
1990
1991
1992
1993
stock
33.8
121.4
76
177.5
193.6
-306.7
-4.8
-178.0
40.5
land
75.5
253.2
415.5
166.7
313.6
235.7
-191.7
-228.9
-133.2
tril.yen
total% to GDP
109.3
34
374.5
111.5
491.5
140.2
344.2
92.1
507.2
127.1
-71
-16.6
-196.6
-43.2
-406.9
-86.9
-92.7
-19.8
10
After the Feast
• too much production capacities
 adjustment of investments
• balance sheet adjustment
11
operating rate
120.0
110.0
100.0
90.0
80.0
70.0
60.0
manufacturing
steel
automobile
12
25
20
15
10
5
0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
-5
-10
-15
-20
house investment
private equipment investment
13
Asset price fall
• Asset prices began to fall in 1991
• Balance sheet problem
– phase 1: non-manufacturing sectors
– phase 2: financial sector
14
balance sheet problem: phase 1
15
Balance sheet problem: phase 2
tril. yen
bad loans
16
• why resolving the bad loan problems was so
delayed?
– underestimation of seriousness of recession
(dream of high economic growth was kept)
– definition of bad loans by the government was
gradually widened
– who share the burdens of bad loans
• management, shareholders, depositors, financial
institutions, state
• it took almost 10 years to settle who share the loss of
bankrupted financial institutions
17
Nov. 1997
Yamaichi Security and Hokkaido-Takushoku-Bank
declared to be bankrupted
18
• Japanese Government injected capital to
financial institutions in 2002
19
20
How the bad loan problems
changed behaviors?
• banking behavior
– decrease of lending
– roles as main banks lowered
• enterprise behavior
– curtails of investment and employment
• household behavior
– curtails of purchase of durable goods
• Vicious circle of recession
21
%
tril. yen
540
10
8
520
6
500
4
480
2
460
0
-2
440
-4
420
-6
400
-8
1990
1992
1994
1996
nominal GDP
(tril. yen)
1998
2000
2002
2004
nominal GDP growth
2006
2008
2010
real GDP growth
22
4
3
2
1
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
-1
-2
-3
GDP deflator
CPI
23
Stimuli to recover
• Active Fiscal Policy
• Relaxation of Monetary Policy
↓
• What to do next?
-fast aging society
-fiscal problem
-environment
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Fiscal Policy
expenditure
tax revenue deficit gov bond
construction gov bond
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
25
government debt
construction gov bond
deficit gov bond
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
26
Why fiscal measures were ineffective?
• Fiscal measures
– mismanagement
• delay of fiscal stimuli in the beginning of the 1990s
• raising consumption tax rate in 1997
• budget expansion since the end of the 1990s
– main targets
• construction works
• public investments to rural area
– expenditure driven by aging
• decrease of tax revenue in the 1990s = first
cause of gov debt problems
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Monetary Policy
official discount rate
28
• Overnight Call Rate Target
– 2/1999 - 0.15%（zero interest rate policy）
– 11/8/2000 - 0.25%（temporary lift)
– 28/2/2001 - 0.15%（reintroduction）
– 14/7/2006 - 0.25%（re-lift）
– 21/2/2007 - 0.5%
– 31/10/2008 - 0.3%
– 19/12/2008 - 0.1%
– 5/10/2010 - 0.0～0.1%
29
Monetary Base Balance
China
Japan
US
UK
Euro Area
South Korea
30
Why monetary policies were ineffective?
• monetary policy remained to control high land
prices even after the burst of bubble
• De facto zero interest rate policy started in the
end of the 1990s, but modest
• De jure zero interest rate policy started in
1999, but was lifted when the recovery was
still weak
• Quantitative easing was practiced, but the
monetary base was not enough enlarged
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Restructuring of the JP economy
• Public sector restructuring
– From Public to Private
• corporatization of remaining public corporations
(highway, post)
– From the Center to Regions
• decentralization of decision making power and financial
resources
No Reform,
No Growth
32
• Labor market reform
33
13
14
Competitiveness
15
16
Structural reform was also not enough
• Japan Post and Japan Highway were
corporatized, but not privatized
• Japan’s competitiveness is not recovered
• Japan’s corporate governance reforms were
not enough
It’s not A Sony
38
Decline of population
39
2,679
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1,000
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1960
1,500
1950
1940
3,000
2,679
2,500
2,092
2,000
1.606
1,070
500
0
newly born
40
1920
1930
1940
1947
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2006
2007
2008
2009
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
100
90
80
70
60
50
40
7565-74
20-64
0-19
30
20
10
0
41
20
Problems of the aging society
• decline of labor population
• decline of saving ratios
– new investment
– management of government debt problems
• increase of pension and health care burdens
43
How to activate Japanese Economy?
• redesign of Japanese economic system
– to make Japan more open
– to make Japan more innovative & creative
–…
• sustainability of Japanese society
– to reform pension and health care systems
– to reform budgetary system
–…
44
Liberal
Democratic
Party
Abe, Shinzo
9/2006-9/2007
Koizumi, Jun’ichiro
4/2001-9/2006
Fukuda, Yasuo
9/2007-9/2008
Aso, Taro
9/2008-9/2009
45
Democratic Party of Japan
Hatoyama, Yukio
9/2009-6/2010
Kan, Naoto
6/2010-9/2011
Noda, Yoshihiko
9/2011-
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Summary
•
•
•
•
delay of recognition
stimulus package was too little, too late
monetary policy has been timid
active fiscal policies during the 1990s and 2000s
caused a serious sovereign debt problem
• state bonds expanded to 200% of GDP
• Japanese governments have been too weak to
implement structural policies
• Japan needs to change its system, but to where?
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Data by Thomson Reuters
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Announcement
• EUIJ-Kansai (Young Fellow Scheme) invites one
researcher from the EU member countries in
the FY 2012 (April 2012 – March 2013), to stay
in Kobe / Osaka for 1-2 week(s) , to advance
your research, and to be familiar with Japan.
• I hope you to raise your hands!
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Thank you for your attention!
[email protected]
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