Japan’s falling Economy
Why Japan is falling?
Japan has been one of the economic superpower of the world in earlier decades.
But now, it has been deteriorating in many ways. The world never predicted it in such ways.
So, what led to fall of Japan?
Japan has been dealing with a curse- Ageing Population.
This sums up the question- Why Japan is falling? in simple terms. Its economy has tanked. It recently entered into recession. Jobs are less. Healthcare expenses and interest payments on existing debt are skyrocketing.
First, we need to get into little history to know what Japan had-
Japan rebuilt after World War 2.
Become one of the largest growing economy in 1970s and 1980s.It developed very fast.
It’s industry were booming. Industrial revolution was picking up.
It soon became largest manufacturer of goods, cars, and electronics among others at low cost.
This also led to growth and boom of real estate in 1980s.
Just to give you an example- Rate of 3.4 sq. Km of land in Central Tokyo was equal to whole of California.
Can you believe that? Well, that’s true.
Economists started predicting when will Japan overtake the USA as an economic superpower of the world.
Then came its worst.
Soon after building on foreign exchange, exports and an energetic workforce Japan’s fate took a turn.
Its economy started fading in 1990s.
The Japanese economy has been growing painfully slowly since the asset price bubble burst in 1992 or THE LOST DECADE This is considered a gigantic reason to blame most of Japan’s misfortune.
Just to give a view Japan’s GDP in 1994 was $5.4 trillion.
It remains to be at $5.1 trillion in 2019.
You might have gotten the idea that it’s really bad. NO REAL GROWTH.
Why Japan is falling?
Now discuss why all this is following Japan.
One of the biggest reason is that Japan is aging.
Its average age stands at 48.4 years. (As of Feb 2020) Japan’s population is the world’s oldest.
This is why the Govt. is forced to spend on healthcare and pension funds not much on economic growth.
Also, Working population spends money on elder parents, not investing which would’ve helped grow the nation.
Additionally, to make things worse.
Corporates like Toyota outperformed by other competitors in global market.
And Sectors like IT manufacturing are taken over by China and Taiwan.
Japan has already been losing its market share in manufacturing and services. Japan failed to reap the benefits of Tech as compared to other nations.
Moreover, its foreign reserves are at decline.
Exports are slowing.
And most importantly Public Debt is increasing. Japan has the highest debt to GDP ratio of 240%. Meaning Japan has a debt of around $12.2 trillion.
What’s really bad is Interest on this debt the BONDS, despite being as low as 0.25% , eats up most of the Tax Revenue of the Japanese government and it is accumulating fast.
Japan has been facing stagnation since 1990s, and it has been growing at a very small percentage point.
Deflation is prevailing.
This means instead of a car being of $10000, it will be $9800 next year due to low demand.
Banks have a negative Interest rate for consumers, so the Japanese would rather save that money and let deflation do the work for them.
Japanese govt. has been taking various measures to stay at the sink of growth.
Many of them includes Abenomics by PM Shinzo Abe.
Printing money to curb deflation and achieve inflation.
This trick also failed as it was not able to generate inflation more than 2-3% because people didn’t spend that money. Instead, they saved it for their healthcare and investment in bonds- JGBs issued by Bank of Japan.
Additionally, stagnant wages coupled with low consumer spending has been making things worse.
Lastly, the deteriorating value of the Japanese Yen in the forex market is also a big worry for Japan.
By all this it can be said that Japan has been facing a real crisis.
In order to fight that, the Japanese govt. should come up with more fiscal policies that may help the nation.
It’s not yet clear how Japan will make it work.
Even if the economy grows and jobs are created, who will fill them still remains a challenge. And if that’s gonna be done by migration from other countries, it’s again bad for its currency value.
But growth remains the main concern.
Let’s see how Japan makes it to skies again or NOT.
Till next Thursday……
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