Regressing Japans economic growth Literature review

Regressing Japans economic growth - Literature review Example This article is therefore relevant because it addresses the key points related to the yen/$ exchange rate and points to the prolonged stagnation in Japan. Hamada and Okada, in this article argue that in the 1980s, Japanese economy was marked by a phase of a speculative bubble. In the course of the 1980s, the state had a large commercial surplus with the U.S, exporting far much than its imports. Japan gained from a devalued currency, meaning that its exports became cheaper for the United States. Japans exports really flourished during this era till the leading American policy elites got concerned about the â€Å"disruptive force† of Japan in American economic living. To get a solution to this commercial imbalance, the Japanese regime permitted the yen to appreciate alongside the dollar in early 1986. This shortly led to an economic contraction and a decrease in the export-based electronics, automobile, and steel industry. The Central Bank of Japan made an effort to alleviate a weakening economy by lowering the official interest, which resulted in the historical documentation of high stock prices that were at the peak in 1989. The article further suggests that the large commercial surpluses, the low interest rates, and the strong yen swelled Japan’s monetary supply. The auto industry, which was the countries stronghold in industrial economy had dominated the markets, and wanted speculative outlets for their huge savings. On the other hand, banks were enthusiastic to lend money to people to purchase real estates. In 1987, when the gross national product (GNP) in Japan was 345 trillion yen, monetary assets went up by 382 trillion yen, as the land assets increased at 374 trillion yen. In addition, the banks... Even though Japan went through a crisis especially the worldwide recession in 2008, its present depression can be traced back to late 1980s and early 1990s as well as the collapse of the Equity markets and its housing. Many economists have researched on the â€Å"lost decade†, developing arguments about the causes and suitable policy responses that explain the issue. According to Schaltegger, C. A., & Weder, M, 2013, the monetary policy of the Bank of Japan at the end of 1980s is similar to the Federal Reserve’s strategy before the global financial catastrophe. Interest rates had been maintained at uniquely low levels for some good time even though the economic growth was strong and robust price increases in a number of financial assets were present. Interest rates then went up decisively and repeatedly from 2.5% to 6% in a period of 16 months. In the same way, the US learned the most important lessons as a result of the great depression; that monetary policy was too procyclical and restrictive, resulting to a downward spiral and deflation in economic activity. The federal reserve in America has committed itself to maintain interest rates close to zero till it reaches mid 2015 even if it means economic activities might be stronger than it is expected at present. On the other hand, Japan reduced interest rates more gradually from six to three percent within the foremost 15 months of the crisis. In connection to this, the impact was that persistent problems in the monetary field, slow growth, and deflation led Japans bank to lessen interest rates further to approximately 0.5% in September 1995.