: Business Cycle Analysis: Japan’s Lost Decade

: Business Cycle Analysis: Japan’s Lost Decade


Course: Business Cycle Analysis: Japan’s Lost Decade



            Ever since the World War II, Japan realized unprecedented levels of economic growth for successive decades. However, when the last decade of the 20th arrived, Japan’s economy took a nosedive, and took a mode of stagnation from that time onwards. The mystery which enshrouds the circumstances surrounding the Japan’s economic recession has it that neither the Monetarist nor the Keynesian explanations have succeeded in explaining this phenomenon. The most interesting twist in this phenomenon is the fact that even Japanese economists concede to the idea that it is only the Austrian Theory which can best explain the recession.

The decades which succeeded the Second World War saw Japan implement stringent policies and tariffs which were all geared towards encouraging the citizen to save their income. This situation led to the banks having a lot of money to give as loans and credit; also given the fact that at the time, Japan was running huge trade surpluses. This state of affair appreciated the value of the Yen, in the light of foreign currencies. An array of companies invested in capital resources very easily, compared to the overseas companies. This development led to the plummeting of Japanese brands as the trade surplus in Japan widened (Yoshikawa, 2002 p 112).

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