Japan’s Economic Fall

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Laid to ruins at the end of the Second World War largely by the air force and navy of the United States—and with two of its cities obliterated by atomic bombs—Japan thrived in the post-war period, matching and in some cases exceeding the economic expansion of the U.S. But this rise was not unending. After huge growth in the 1980s, Japan suffered a terrible “lost decade” during the 1990s, beginning with the world recession in 1990-92. Why was the recession so especially painful for Japan? Why did it extend for almost a full decade, causing so many lost economic opportunities? And perhaps more importantly, what can the United States and the global economy, currently mired in a serious recession, learn from this period of economic doldrums in Japan? This essay will try to get to the bottom of these important and timely questions.
In the decade before the long drawn out recession of the 1990s, Japan experienced unprecedented growth. Its flagship industries—electronics and automobiles—were taking over the world. These companies had an impressive reputation for high quality and reliability and were dominating their markets. American automobile makers were taken aback. American electronic companies were being bought up. Because of savings programs implemented by the government and tariffs against investing in foreign companies, there was a lot of money in Japan available to invest in Japanese companies and other investments. The government was trying to depreciate the yen, which had soared in value in the previous years. In order to do this, they dramatically eased monetary policy and increased spending. This economic stimulus led to a lot more money in the marketplace. Many economists believe that this situation led to an asset bubble in the late 1980s—similar to what happened in the United States over the last few years. Real estate and art, for example, rapidly appreciated.&nbsp.