Economy of Japan Essay Example | Topics and Well Written Essays - 3250 words

Economy of Japan - Essay Example The country is also the largest in terms of foreign investment and has successfully sustained a trade surplus for more than five decades. As of 200, the Japanese state holds a sixth of the United States Treasury Securities, which represents about 3.5 percent of the United States' gross domestic product. It is notable that Japan's economic problems can greatly impact the global market (CIA World Factbook, 2006 and Economist Intelligence Unit (b), 2006). After the Second World War, much of Japan's industries were destroyed. Economic growth was achieved after the War with the strong work ethic of its labor force, sound economic policies and close ties between the government and business sector, efficient and technology-driven industrial methods resulted in one of the most spectacular growth rate averages of 10% in the 1960s. This trend continued in the 1970s and early to mid-1980s, posting average growth rates of 5% and 4% respectively. During the late 1980s, there was a noticeable increase in terms of real state and stock prices which was due to slackening of monetary policies in the middle of the decade and would later result to over-investment. When the Bank of Japan (Central Bank) tightened measures and increased interest rates to rein speculation of asset share prices in early 1990S, this resulted to an economic slump that would last until 2003, despite government revitalization policies and efforts. Another factor was a marked slowdown of the global economy (Economist Intelligence Unit (b), 2006). PAST ECONOMIC DEVELOPMENT Japan's economic development dramatically slowed down as an outcome of the 1990's asset price bubble. Because of the sharp decrease in the asset prices, the supply and demand mechanisms of the country were greatly impacted. From this period, the government's response to install economic reform was passive, overlooking the need to counter the effects of the surplus in capacity build-up after the bubble economic debacle which eventually led to the sharp cut in its total factor productivity. Monetary and fiscal policies were again alleviated to revive the economy. As a consequence, the fiscal balance shifted to close at three percent of 1991's GDP and proceeded to a deficit of eight percent in the year 2000. To make matters worse, its domestic debt have increased to 130% of its GDP in 2000. There was also a steady appreciation of the yen against the US dollar in the mid 1990s but this was lessened due to fiscal measures (Grimond, 2002). The languished state of the Japanese economy that continued for more than a decade since 1990 became the focused of other world economies, for it had stimulated the continued problems related to non-performing loans (NPLs) and add to the decline of world asset and consumer prices. From 1991, the real gross domestic product has only increased by a measly fourteen percent. In contrast, the GDP of the United States during the same period was pegged at forty-four percent (Grimond, 2002). While there was an increase of 3.7 percent in terms of its consumer price index (CPI) in the particular phase, its CPI continued to drop beginning 1998, a trend that was arrested only in 2003. Accordingly, there was a marked pronouncement of the deflation of asset prices. The country's Nikkei index