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Economic history of Japan

Main articles: Economy of Japan and Economic relations

of Japan

The economic history of Japan is most studied for the

spectacular social and economic growth in the 1800s af-
ter the Meiji Restoration, when it became the rst non-
European great power, and for its expansion after the
Second World War, when Japan recovered from devas-
tation to become the world's second largest economy be-
hind the United States, and from 2013 behind China as
well. Scholars have evaluated the nation's unique eco-
nomic position during the Cold War, with exports going
to both U.S.- and Soviet-aligned powers, and have taken
keen interest in the situation of the post-Cold War period
of the Japanese 'lost decades'.

1 First contacts with Europe (16th


Main article: Nanban trade period

Renaissance Europeans were quite admiring of Japan

The Samurai Hasekura Tsunenaga in Rome in 1615, Coll.
when they reached the country in the 16th century. Japan
Borghese, Rome
was considered a country immensely rich in precious met-
als, mainly owing to Marco Polo's accounts of gilded tem-
ples and palaces,* [1] but also due to the relative abun-
dance of surface ores characteristic of a volcanic coun- 1.1 Trade with Europe
try, before large-scale deep-mining became possible in
Industrial times. Japan was to become a major exporter
The cargo of the rst Portuguese ships (usually about four
of copper and silver during the period. small ships every year) that arrived in Japan consisted
Japan was also perceived as a sophisticated feudal society almost entirely of Chinese goods (silk, porcelain). The
with a high culture and advanced pre-industrial technol- Japanese were very much looking forward to acquiring
ogy. It was densely populated and urbanized. Prominent such goods, but had been prohibited from any contacts
European observers of the time seemed to agree that the with the Emperor of China, as a punishment for Wak
Japaneseexcel not only all the other Oriental peoples, they pirate raids. The Portuguese (who were called Nanban,
surpass the Europeans as well (Alessandro Valignano, lit. Southern Barbarians) therefore found the opportunity
1584,Historia del Principo y Progresso de la Compania to act as intermediaries in Asian trade.
de Jesus en las Indias Orientales). From the time of the acquisition of Macau in 1557, and
Early European visitors were amazed by the quality of their formal recognition as trade partners by the Chinese,
Japanese craftsmanship and metalsmithing. This stems the Portuguese started to regulate trade to Japan, by sell-
from the fact that Japan itself is rather poor in natural ing to the highest bidder the annualCaptaincyto Japan,
resources found commonly in Europe, especially iron. in eect conferring exclusive trading rights for a single
Thus, the Japanese were famously frugal with their con- carrack bound for Japan every year. The carracks were
sumable resources; what little they had they used with ex- very large ships, usually between 1000 and 1500 tons,
pert skill. about double or triple the size of a large galleon or junk.


A Portuguese carrack in Nagasaki, 17th century

That trade continued with few interruptions until 1638,

when it was prohibited on the ground that the ships were
smuggling priests into Japan.
Portuguese trade was progressively more and more chal-
lenged by Chinese smugglers on junks, Japanese Red Seal
Ships from around 1592* [2] (about ten ships per year),
Spanish ships from Manila from around 1600 (about one
ship per year), the Dutch from 1609, and the English from
1613 (about one ship per year).
The Dutch, who, rather than Nanbanwere called A Japanese-made clockwatch of the 18th century, or Wadokei.
Km" (Jp: , lit. Red Hair) by the Japanese, Then time changed in the season because from sunrise to sunset
rst arrived in Japan in 1600, on board the Liefde.* [3] made 12 hours and from sunset to sunrise made 12 hours.
Their pilot was William Adams, the rst Englishman to
reach Japan. In 1605, two of the Liefde's crew were sent
to Pattani by Tokugawa Ieyasu, to invite Dutch trade to
Japan. The head of the Pattani Dutch trading post, Vic- headed by Hasekura Tsunenaga to the Americas, and
tor Sprinckel, refused on the ground that he was too busy then continued to Europe. Also during that period, the
dealing with Portuguese opposition in Southeast Asia. In bakufu commissioned around 350 Red Seal Ships, three-
1609 however, the Dutch Jacques Specx arrived with two masted and armed trade ships, for intra-Asian commerce.
ships in Hirado, and through Adams obtained trading Japanese adventurers, such as Yamada Nagamasa, were
privileges from Ieyasu. active throughout Asia.

The Dutch also engaged in piracy and naval combat to In order to eradicate the inuence of Christianization,
weaken Portuguese and Spanish shipping in the Pacic, Japan entered in a period of isolation called sakoku,
and ultimately became the only westerners to be allowed during which its economy enjoyed stability and mild
access to Japan from the small enclave of Dejima after progress.
1638 and for the next two centuries. Economic development during the Edo period included
urbanization, increased shipping of commodities, a sig-
nicant expansion of domestic and, initially, foreign
2 Edo period commerce, and a diusion of trade and handicraft in-
dustries. The construction trades ourished, along with
The beginning of the Edo period coincides with the last banking facilities and merchant associations. Increas-
decades of the Nanban trade period, during which in- ingly, han authorities oversaw the rising agricultural pro-
tense interaction with European powers, on the economic duction and the spread of rural handicrafts.
and religious plane, took place. At the beginning of the By the mid-18th century, Edo had a population of more
Edo period, Japan built her rst ocean-going Western- than 1 million and Osaka and Kyoto each had more than
style warships, such as the San Juan Bautista, a 500-ton 400,000 inhabitants. Many other castle towns grew as
galleon-type ship that transported a Japanese embassy well. Osaka and Kyoto became busy trading and handi-

craft production centers, while Edo was the center for the powerhouse by the beginning of the 20th century.* [6]
supply of food and essential urban consumer goods. In the Meiji period, leaders inaugurated a new Western-
Rice was the base of the economy, as the daimyo col- based education system for all young people, sent thou-
lected the taxes from the peasants in the form of rice. sands of students to the United States and Europe, and
Taxes were high, about 40% of the harvest. The rice was hired more than 3,000 Westerners to teach modern sci-
sold at the fudasashi market in Edo. To raise money, the ence, mathematics, technology, and foreign languages in
daimyo used forward contracts to sell rice that was not Japan (O-yatoi gaikokujin). The government also built
yet harvested. These contracts were similar to modern railroads, improved roads, and inaugurated a land reform
futures trading. program to prepare the country for further development.
During the period, Japan progressively studied Western To promote industrialization, the government decided
sciences and techniques (called rangaku, literallyDutch that, while it should help private business to allocate re-
studies) through the information and books received sources and to plan, the private sector was best equipped
through the Dutch traders in Dejima. The main areas that to stimulate economic growth. The greatest role of gov-
were studied included geography, medicine, natural sci- ernment was to help provide the economic conditions
ences, astronomy, art, languages, physical sciences such in which business could ourish. In short, government
as the study of electrical phenomena, and mechanical was to be the guide, and business the producer. In the
sciences as exemplied by the development of Japanese early Meiji period, the government built factories and
clockwatches, or wadokei, inspired from Western tech- shipyards that were sold to entrepreneurs at a fraction of
niques. their value. Many of these businesses grew rapidly into
the larger conglomerates. Government emerged as chief
promoter of private enterprise, enacting a series of pro-
business policies.
3 Meiji period
The development of banking and reliance on bank fund-
ing have been at the centre of Japanese economic devel-
After 1854, when the Tokugawa shogunate rst opened
opment at least since the Meiji era.* [7]
the country to Western commerce and inuence
(Bakumatsu), Japan went through two periods of eco-
nomic development. When the Tokugawa shogunate
was overthrown and the Meiji government was founded, 4 20th century
Japanese Westernization began completely. The rst
term is during Pre-war Japan, the second term is In the mid-1930s, the Japanese nominal wage rates were
Post-war Japan.* [4] a tenth of those in the United States (based on mid-1930s
The industrial revolution rst appeared in textiles, includ- exchange rates), while the price *level is estimated to have
ing cotton and especially silk, which was based in home been about 44% that of the US. [8]
workshops in rural areas. By the 1890s, Japanese tex- Comparison of GDP per capita (US Dollars) between
tiles dominated the home markets and competed success- East-Asian Nations and the US in 1935:
fully with British products in China and India, as well.
Japanese shippers were competing with European traders
to carry these goods across Asia and even to Europe. As 4.1 Militarism
in the West, the textile mills employed mainly women,
half of them under age twenty. They were sent there by Before World War II, Japan built an extensive empire that
their fathers, and they turned over their wages to their fa- included Taiwan, Korea, Manchuria, and parts of north-
thers.* [5] Japan largely skipped water power and moved ern China. The Japanese regarded this sphere of inuence
straight to steam powered mills, which were more pro- as a political and economic necessity, preventing foreign
ductive, and which created a demand for coal. states from strangling Japan by blocking its access to raw
One of the biggest impacts on the economy that the Meiji materials and crucial sea-lanes, as Japan possessed very
period brought was the end of the feudal system. With a few natural and mining resources of its own, although it
relatively loose social structure, the Japanese people were imported large amounts of coal from Korea, Manchukuo,
able to advance through the ranks of society more eas- and some regions of occupied China. Japan's large mil-
ily than before. They were able to do this by invent- itary force was regarded as essential to the empire's de-
ing and selling their own wares. More important was fense.
the fact that the Japanese people now had the ability to Rapid growth and structural change characterized Japan's
become more educated. With a more educated popu- two periods of economic development since 1868. In the
lation, Japan's industrial sector grew signicantly. Im- rst period, the economy grew only moderately at rst and
plementing the Western ideal of capitalism into the de- relied heavily on traditional agriculture to nance mod-
velopment of technology and applying it to their military ern industrial infrastructure. When the Russo-Japanese
helped make Japan into both a militaristic and economic War began in 1904, 65% of employment and 38% of the

gross domestic product (GDP) was still based on agricul- 5 Post-war period
ture but modern industry had begun to expand substan-
tially. During World War I, Japan used the absence of See also: Japanese post-war economic miracle
the war-torn European competitors on the world market
to advance its economy, generating a trade surplus for the
rst time since the isolation in the Edo period. By the late The war wiped out many of the gains which Japan had
1920s, manufacturing and mining contributed 23% of made since 1868. About 40% of the nation's industrial
GDP, compared with 21% for all of agriculture. Trans- plants and infrastructure were destroyed, and production
portation and communications had developed to sustain reverted to levels of about fteen years earlier. The peo-
heavy industrial development. ple were shocked by the devastation and swung into ac-
tion. New factories were equipped with the best mod-
In the 1930s, the Japanese economy suered less from ern machines, giving Japan an initial competitive advan-
the Great Depression than most industrialized nations, its tage over the victor states, who now had older factories.
GDP expanding at the rapid rate of 5% per year. Manu- As Japan's second period of economic development be-
facturing and mining came to account for more than 30% gan, millions of former soldiers joined a well-disciplined
of GDP, more than twice the value for the agricultural and highly educated work force to rebuild Japan. Japan's
sector. Most industrial growth, however, was geared to- colonies were lost as a result of World War II, but since
ward expanding the nation's military power. then the Japanese had extended their economic inuence
Beginning in 1937 with signicant land seizures in China, throughout Asia and beyond.
and to a greater extent after 1941, when annexations and
invasions across Southeast Asia and the Pacic created
the Greater East Asia Co-Prosperity Sphere, the Japanese 5.1 Occupation
government sought to acquire and develop critical natu-
ral resources in order to secure economic independence. The United States' occupation of Japan (194552) re-
Among the natural resources that Japan seized and devel- sulted in the rebuilding of the nation and the creation of
oped were: coal in China, sugarcane in the Philippines, a democratic nation. US assistance totaled about US$1.9
petroleum from the Dutch East Indies and Burma, and billion during the occupation, or about 15% of the na-
tin and bauxite from the Dutch East Indies and Malaya. tion's imports and 4% of GNP in that period. About
Japan also purchased the rice production of Thailand, 59% of this aid was in the form of food, 15% in indus-
Burma, and Cochinchina. trial materials, and 12% in transportation equipment. US
grant assistance, however, tapered o quickly in the mid-
During the early stages of Japan's expansion, the Japanese 1950s. US military procurement from Japan peaked at
economy expanded considerably. Steel production rose a level equivalent to 7% of Japan's GNP in 1953 and
from 6,442,000 tonnes to 8,838,000 tonnes over the same fell below 1% after 1960. A variety of United States-
time period. In 1941 Japanese aircraft industries had the sponsored measures during the occupation, such as land
capacity to manufacture 10,000 aircraft per year. Much reform, contributed to the economy's later performance
of this economic expansion beneted the "zaibatsu", large by increasing competition. In particular, the post-war
industrial conglomerates. purge of industrial leaders allowed new talent to rise in
Over the course of the Pacic War, the economies of the management of the nation's rebuilt industries. Finally,
Japan and its occupied territories all suered severely. the economy beneted from foreign trade because it was
Ination was rampant; Japanese heavy industry, forced to able to expand exports rapidly enough to pay for imports
devote nearly all its production to meeting military needs, of equipment and technology without falling into debt, as
was unable to meet the commercial requirements of Japan had a number of developing nations in the 1980s.* [11]
(which had previously relied on trade with Western coun-
tries for their manufactured goods). Local industries were
unable to produce at high enough levels to avoid severe 5.2 Rebuilding
shortfalls. Furthermore, maritime trade, upon which the
Empire depended greatly, was sharply curtailed by dam- The early post-war years were devoted to rebuilding lost
age to the Japanese merchant eet over the course of the industrial capacity: major investments were made in elec-
war. tric power, coal, steel, and chemicals. By the mid-1950s,
production matched prewar levels. Released from the de-
By the end of the war, what remained of the Japanese
mands of military-dominated government, the economy
Empire was wracked by shortages, ination, and currency
not only recovered its lost momentum but also surpassed
devaluation. Transport was nearly impossible, and indus-
the growth rates of earlier periods. Between 1953 and
trial production in Japan's shattered cities ground to a halt.
1965, GDP expanded by more than 9% per year, manu-
The destruction wrought by the war eventually brought
facturing and mining by 13%, construction by 11%, and
the Japanese economy to a virtual standstill.
infrastructure by 12%. In 1965 these sectors employed
more than 41% of the labor force, whereas only 26% re-
mained in agriculture.
5.4 Factors of growth 5

Japan's highly acclaimed post-war education system con- (and that had bothered Japan itself after the rst oil crisis
tributed strongly to the modernizing process. The world's in 1973). Japan experienced slower growth in the mid-
highest literacy rate and high education standards were 1980s, but its demand-sustained economic boom of the
major reasons for Japan's success in achieving a techno- late 1980s revived many troubled industries.
logically advanced economy. Japanese schools also en-
couraged discipline, another benet in forming an eec-
tive work force. 5.4 Factors of growth
The mid-1960s ushered in a new type of industrial de-
Complex economic and institutional factors aected
velopment as the economy opened itself to international
Japan's post-war growth. First, the nation's prewar
competition in some industries and developed heavy and
experience provided several important legacies. The
chemical manufactures. Whereas textiles and light man-
Tokugawa period (16001867) bequeathed a vital com-
ufactures maintained their protability internationally,
mercial sector in burgeoning urban centers, a relatively
other products, such as automobiles, electronics, ships,
well-educated elite (although one with limited knowl-
and machine tools assumed new importance. The value
edge of European science), a sophisticated government
added to manufacturing and mining grew at the rate of
bureaucracy, productive agriculture, a closely unied na-
17% per year between 1965 and 1970. Growth rates
tion with highly developed nancial and marketing sys-
moderated to about 8% and evened out between the in-
tems, and a national infrastructure of roads. The buildup
dustrial and service sectors between 1970 and 1973, as
of industry during the Meiji period to the point where
retail trade, nance, real estate, information technology,
Japan could vie for world power was an important pre-
and other service industries streamlined their operations.
lude to post-war growth from 1955 to 1973, and provided
a pool of experienced labor.* [12]

5.3 Oil crisis Second, and more important, was the level and qual-
ity of investment that persisted through the 1980s. In-
Japan faced a severe economic challenge in the mid- vestment in capital equipment, which averaged more than
1970s. The 1973 oil crisis shocked an economy that had 11% of GNP during the prewar period, rose to about 20%
become dependent on imported petroleum. Japan ex- of GNP during the 1950s and to more than 30% in the
perienced its rst post-war decline in industrial produc- late 1960s and 1970s. During the economic boom of the
tion, together with severe price ination. The recovery late 1980s, the rate still hovered around 20%. Japanese
that followed the rst oil crisis revived the optimism of businesses imported the latest technologies to develop
most business leaders, but the maintenance of industrial the industrial base. As a latecomer to modernization,
growth in the face of high energy costs required shifts in Japan was able to avoid some of the trial and error earlier
the industrial structure. needed by other nations to develop industrial processes.
In the 1970s and 1980s, Japan improved its industrial
Changing price conditions favored conservation and al- base through licensing from the US, patent purchases, and
ternative sources of industrial energy. Although the in- imitation and improvement of foreign inventions. In the
vestment costs were high, many energy-intensive indus- 1980s, industry stepped up its research and development,
tries successfully reduced their dependence on oil during and many rms became famous for their innovations and
the late 1970s and 1980s and enhanced their productiv- creativity.* [13]
ity. Advances in microcircuitry and semiconductors in
the late 1970s and 1980s led to new growth industries in Japan's labor force contributed signicantly to eco-
nomic growth, because of its availability and literacy, and
consumer electronics and computers, and to higher pro-
ductivity in pre-established industries. The net result of also because of its reasonable wage demands. Before and
immediately after World War II, the transfer of numerous
these adjustments was to increase the energy eciency of
manufacturing and to expand knowledge-intensive indus- agricultural workers to modern industry resulted in rising
tries. The service industries expanded in an increasingly productivity and only moderate wage increases. As popu-
postindustrial economy. lation growth slowed and the nation became increasingly
industrialized in the mid-1960s, wages rose signicantly.
Structural economic changes, however, were unable to However, labor union cooperation generally kept salary
check the slowing of economic growth as the economy increases within the range of gains in productivity.
matured in the late 1970s and 1980s, attaining annual
growth rates at only 46%. But these rates were remark- High productivity growth played a key role in post-war
able in a world of expensive petroleum and in a nation economic growth. The highly skilled and educated la-
of few natural resources. Japan's average growth rate of bor force, extraordinary savings rates and accompanying
5% in the late 1980s, for example, was far higher than levels of investment, and the low growth of Japan's labor
the 3.8% growth rate of the United States. Despite more force were major factors in the high rate of productivity
petroleum price increases in 1979, the strength of the growth.
Japanese economy was apparent. It expanded without the The nation also beneted from economies of scale. Al-
double-digit ination that aicted other industrial nations though medium-sized and small enterprises generated

much of the nation's employment, large facilities were jor industrial nations in 1990 in per capita GNP at
the most productive. Many industrial enterprises consol- US$23,801, up sharply from US$9,068 in 1980. After a
idated to form larger, more ecient units. Before World mild economic slump in the mid-1980s, Japan's economy
War II, large holding companies formed wealth groups, began a period of expansion in 1986 that continued until
or zaibatsu, which dominated most industry. The zaibatsu it again entered a recessionary period in 1992. Economic
were dissolved after the war, but keiretsularge, modern growth averaging 5% between 1987 and 1989 revived in-
industrial enterprise groupingsemerged. The coordina- dustries, such as steel and construction, which had been
tion of activities within these groupings and the integra- relatively dormant in the mid-1980s, and brought record
tion of smaller subcontractors into the groups enhanced salaries and employment. In 1992, however, Japan's real
industrial eciency.* [14] GNP growth slowed to 1.7%. Even industries such as
automobiles and electronics that had experienced phe-
Japanese corporations developed strategies that con-
tributed to their immense growth. Growth-oriented nomenal growth in the 1980s entered a recessionary pe-
riod in 1992. The domestic market for Japanese auto-
corporations that took chances competed successfully.
Product diversication became an essential ingredient mobiles shrank at the same time that Japan's share of the
United States' market declined. Foreign and domestic de-
of the growth patterns of many keiretsu. Japanese com-
panies added plant and human capacity ahead of demand. mand for Japanese electronics also declined, and Japan
Seeking market share rather than quick prot was another seemed on the way to losing its leadership in the world
powerful strategy. semiconductor market to the United States, Korea and
Finally, circumstances beyond Japan's direct control con-
tributed to its success. International conicts tended Unlike the economic booms of the 1960s and 1970s,
to stimulate the Japanese economy until the devasta- when increasing exports played the key role in economic
tion at the end of World War II. The Russo-Japanese expansion, domestic demand propelled the Japanese
War (19045), World War I (191418), the Korean War economy in the late 1980s. This development involved
(195053), and the Second Indochina War (195475) fundamental economic restructuring, moving from de-
brought economic booms to Japan. In addition, benign pendence on exports to reliance on domestic demand.
treatment from the United States after World War II fa- The boom that started in 1986 was generated by the de-
cilitated the nation's reconstruction and growth. cisions of companies to increase private plant and equip-
ment spending and of consumers to go on a buying
spree. Japan's imports grew at a faster rate than exports.
Japanese post-war technological research was carried out
5.5 The changing occupational structure for the sake of economic growth rather than military
development. The growth in high-technology industries
As late as 1955, some 40% of the labor force still worked
in the 1980s resulted from heightened domestic demand
in agriculture, but this gure had declined to 17% by 1970
for high-technology products such as electronics, and for
and to 7.2% by 1990 and under 5% in the 21st century
higher living, housing, and environmental standards; bet-
as Japan imported more and more of its food and small
ter medical care and more welfare; expanded leisure-time
family farms disappeared.* [15]
facilities; and improved ways to accommodate a rapidly
Japan's economic growth in the 1960s and 1970s was aging society.* [16]
based on the rapid expansion of heavy manufacturing
During the 1980s, the Japanese economy shifted its em-
in such areas as automobiles, steel, shipbuilding, chem-
phasis from primary and secondary activities (notably
icals, and electronics. The secondary sector (manufac-
agriculture, manufacturing, and mining) to processing,
turing, construction, and mining) expanded to 35.6% of
with telecommunications and computers becoming in-
the work force by 1970. By the late 1970s, however,
creasingly vital. Information became an important re-
the Japanese economy began to move away from heavy
source and product, central to wealth and power. The
manufacturing toward a more service-oriented (tertiary
rise of an information-based economy was led by major
sector) base. During the 1980s, jobs in wholesaling,
research in highly sophisticated technology, such as ad-
retailing, nance, insurance, real estate, transportation,
vanced computers. The selling and use of information
communications, and government grew rapidly, while
became very benecial to the economy. Tokyo became a
secondary-sector employment remained stable. The ter-
major nancial center, home to some of the world's ma-
tiary sector grew from 47% of the work force in 1970 to
jor banks, nancial rms, insurance companies, and the
59.2% in 1990.
world's largest stock exchange, the Tokyo Securities and
Stock Exchange. Even here, however, the recession took
its toll. In 1992, the Nikkei 225 stock average began the
5.6 1980s year at 23,000 points, but fell to 14,000 points in mid-
August before leveling o at 17,000 by the end of the
Throughout the 1970s, Japan had the world's third largest year.
gross national product (GNP) just behind the United
States and Soviet Union and ranked rst among ma-
5.7 Since the end of Cold War 7

5.7 Since the end of Cold War ating many so-called zombie businesses. Eventually
a carry trade developed in which money was borrowed
5.7.1 1989 Economic Bubble from Japan, invested for returns elsewhere and then the
Japanese were paid back, with a nice prot for the trader.
Further information: Japanese asset price bubble The time after the bubble's collapse ( hkai), which
occurred gradually rather than catastrophically, is known
as thelost decade or end of the 20th century(
In the decades following World War II, Japan imple-
10 ushinawareta jnen) in Japan. The Nikkei 225
mented stringent taris and policies to encourage the peo-
stock index eventually bottomed out at 7603.76 in April
ple to save their income. With more money in banks,
2003, moved upward to a new peak of 18,138 in June
loans and credit became easier to obtain, and with Japan
2007, before resuming a downward trend. The downward
running large trade surpluses, the yen appreciated against
movement in the Nikkei is likely due to global as well as
foreign currencies. This allowed local companies to in-
national economic problems.
vest in capital resources more easily than their overseas
competitors, which reduced the price of Japanese-made
goods and widened the trade surplus further. And, with 5.7.2 Deation from the 1990s to present
the yen appreciating, nancial assets became lucrative.
With so much money readily available for investment, See also: Lost Decade (Japan)
speculation was inevitable, particularly in the Tokyo
Stock Exchange and the real estate market. The Nikkei Deation in Japan started in the early 1990s. On 19
stock index hit its all-time high on 29 December 1989 March 2001, the Bank of Japan and the Japanese gov-
when it reached an intra-day high of 38,957.44 before ernment tried to eliminate deation in the economy by
closing at 38,915.87. The rates for housing, stocks, and reducing interest rates (part of their 'quantitative eas-
bonds rose so much that at one point the government ing' policy). Despite having interest rates near zero for
issued 100-year bonds. Additionally, banks granted in- a long period, this strategy did not succeed.* [17] Once
creasingly risky loans. the near-zero interest rates failed to stop deation, some
At the height of the bubble, real estate values were ex- economists, such as Paul Krugman, and some Japanese
tremely over-valued. Prices were highest in Tokyo's politicians spoke of deliberately causing (or at least creat-
Ginza district in 1989, with choice properties fetching ing the fear of) ination. [18] In July 2006, the zero-rate
over US$1.5 million per square meter ($139,000 per policy was ended. In 2008, the Japanese Central Bank
square foot). Prices were only slightly less in other areas still had the lowest interest rates in the developed world
of Tokyo. By 2004, primeAproperty in Tokyo's nan- and deation continued. [19]
cial districts had slumped and Tokyo's residential homes Systemic reasons for deation in Japan can be said to in-
were a fraction of their peak, but still managed to be listed clude:
as the most expensive real estate in the world. Trillions
were wiped out with the combined collapse of the Tokyo
Fallen asset prices. There was a large price bubble
stock and real estate markets.
in both equities and real estate in Japan in the 1980s
With Japan's economy driven by its high rates of reinvest- (peaking in late 1989).
ment, this crash hit particularly hard. Investments were
increasingly directed out of the country, and Japanese Insolvent companies: Banks lent to companies and
manufacturing rms lost some degree of their technolog- individuals that invested in real estate. When real es-
ical edge. As Japanese products became less competitive tate values dropped, many loans went unpaid. The
overseas, some people argue that the low consumption banks could try to collect on the collateral (land), but
rate began to bear on the economy, causing a deationary due to reduced real estate values, this would not pay
spiral. o the loan. Banks have delayed the decision to col-
lect on the collateral, hoping asset prices would im-
The easily obtainable credit that had helped create and prove. These delays were allowed by national bank-
engorge the real-estate bubble continued to be a problem ing regulators. Some banks make even more loans
for several years to come, and as late as 1997, banks were to these companies that are used to service the debt
still making loans that had a low guarantee of being re- they already have. This continuing process is known
paid. Loan Ocers and Investment sta had a hard time as maintaining an unrealized loss, and until the
nding anything to invest in that would return a prot. assets are completely revalued and/or sold o (and
Meanwhile, the extremely low interest rate oered for de- the loss realized), it will continue to be a deationary
posits, such as 0.1%, meant that ordinary Japanese savers force in the economy.
were just as inclined to put their money under their beds
as they were to put it in savings accounts. Correcting the Insolvent banks: Banks with a large percentage of
credit problem became even more dicult as the govern- their loans which are non-performing(loans for
ment began to subsidize failing banks and businesses, cre- which payments are not being made), but have not

yet written them o. These banks cannot lend July 1997, start of the Asian nancial crisis which
more money until they increase their cash reserves caused several companies including Nissan Mutual
to cover the bad loans. Thus the number of loans is Life Insurance and Yaohan to go bankrupt
reduced sooner and less funds are available for eco-
nomic growth. Post 2000, Bank of Japan begins quantitative easing
Fear of insolvent banks: Japanese people are afraid
that banks will collapse so they prefer to buy gold or 2011, the Aftermath of the 2011 Thoku earth-
(United States or Japanese) Treasury bonds instead quake and tsunami had far reaching economic con-
of saving their money in a bank account. People also sequences
save by investing in real estate. Abenomics, Japan's Prime Minister Shinzo Abe's
programme to help the country's economic recov-
The Economist has suggested that improvements to ery: the economics side is one part of a more gen-
bankruptcy law, land transfer law, and tax law will aid eral programme, which was commented by Joseph
Japan's economy. In October 2009 the Japanese govern- Stiglitz.* [21]
ment announced plans to increase tobacco and green taxes
while reducing rates for small and medium-sized compa-
nies, according to NHK. 7 See also
In 2011 Japan under Yoshihiko Noda decided to con-
sider joining the Trans-Pacic Strategic Economic Part- Bank of Japan
Economy of Japan
The global economic recession of the late 2000s signif-
icantly harmed the economy of Japan. The nation suf- History of Japan
fered a 0.7% loss in real GDP in 2008 followed by a se-
vere 5.2% loss in 2009. In contrast, the data for world Tokugawa coinage
real GDP growth was a 3.1% hike in 2008 followed by a Keiretsu a distinctive Japanese way in which rms
0.7% loss in 2009.* [20] are related
Economic policy over the past several quarters in Japan
has been inuenced by the 'Abenomics' debate, with the Japanese post-war economic miracle
government pursuing aggressive government infrastruc- Japanese asset price bubble
ture spending hikes and signicant yen devaluations.
Lost Decade (Japan)

6 Timeline
8 References
Foundation of Tokugawa Shogunate, beginning of
early modern industrialization 8.1 Notes
Meiji Restoration, beginning of industrialization [1] Wonders and Whoppers / People & Places / Smithso-
nian. Retrieved 17 October 2014.
The World War II, controlled economy during the
war [2] Asia in the Making of Europe, Volume III: A Century of
Advance. Book 3 ... - Donald F. Lach, Edwin J. Van Kley
End of the World War II, beginning of the way to an - Google Livros. Retrieved 17 October 2014.
economic power state
[3] Dutch-Japanese relations / Netherlands Missions, Japan
25 April 1971, End of the Gold Standard . Retrieved 17 October 2014.

22 September 1985, Plaza Accord [4] George Allen, Short Economic History of Modern Japan
29 December 1989, Nikkei 225 average peaks at
38,915 [5] E. Patricia Tsurumi, Factory Girls: Women in the Thread
Mills of Meiji Japan (1992) p. 83
1990s, "the Lost Decade", as it is known in Japan,
is the time after Japan's economic bubble col- [6] Japan Answers the Challenge of the Western World.
The Meiji Restoration and Modernization. Columbia Uni-
lapsed. The Nikkei 225 stock index bottomed out at
versity. Retrieved 3 September 2012.
7603.76 in April 2003, moved upward to a new peak
of 18,138 in June 2007, before resuming a down- [7] Richard A. Werner (2003), Princes of the Yen, Armonk:
ward trend. M. E. Sharpe

[8] Fukao, Kyoji (2007). Real GDP in Pre-War East Asia: A Gordon, Andrew, ed. Postwar Japan as History
193436 Benchmark Purchasing Power Parity Compari- (1993), pp. 99188, 259-292
son with the US (PDF).
Kornicki, Peter F., ed. Meiji Japan: Political, Eco-
[9] Liu, Ta-Chung (1946). China's National Income 1931 nomic and Social History 18681912 (4 vol; 1998)
36, An Exploratory Study. The Brookings Institution. 1336 pages
[10] Maddison, Angus (2003). The World Economy: Historical
Kozo, Yamamura, and Yasuba Yasukichi, eds. The
Statistics. OECD Development Center, Paris, France.
Political Economy of Japan: Volume 1The Domes-
[11] Andrew Gordon, ed., Postwar Japan as History (1993), tic Transformation (1987)
pp. 99-188, 259-292
Lechevalier, Sbastien, ed. The Great Transforma-
[12] Richard Katz, Japanese Phoenix: the long road to eco- tion of Japanese Capitalism (2014) on 1980-2012
nomic revival (2002) excerpt
[13] Yamamura Kozo and Yasuba Yasukichi, eds., The Politi-
Macpherson, W. J. Economic development of Japan
cal Economy of Japan: Volume 1 The Domestic Trans-
formation (1987)
1868-1941 (1995) online, 92pp

[14] Mikio Sumiya (2000). A History of Japanese Trade and Morikawa, Hidemasa. A History of Top Manage-
Industry Policy. Oxford UP. p. 158. ment in Japan: Managerial Enterprises and Family
Enterprises (2001) online edition
[15] Gary D. Allinson (2004). Japan's Postwar History. Cor-
nell UP. pp. 84. Nakamura, Takafusa, et al. eds. The Economic His-
tory of Japan: 16001990: Volume 1: Emergence
[16] Jerey Kingston, Japan in Transformation, 1952-2000
of Economic Society in Japan, 16001859 (2004);
(2001), pp. 36-44
Volume 3: Economic History of Japan 19141955:
[17] Spiegel, Mark (20 October 2006).Did Quantitative Eas- A Dual Structure (2003)
ing by the Bank of Japan Work"?".
Nakamura, James. Agricultural Production and
[18] See, as one example, Paul Krugman's website, the Economic Development of Japan, 18731922
[19] Economic survey of Japan 2008: Bringing an end to (Princeton University Press, 1966)
deation under the new monetary policy framework. 7
Odagiri, Hiroyuki and Akira Goto; Technology and
April 2008.
Industrial Development in Japan: Building Capa-
[20] mundi index bilities by Learning, Innovation, and Public Policy
(1996) online edition
[21] The promise of Abenomics
Rosovsky, Henry. Rumbles in the Rice Fields,
Journal of Asian Studies (February 1968): vol. 27,
8.2 Sources No. 2 pp. 34760
This article incorporates public domain material Tolliday, Steven. The Economic Development of
from the Library of Congress Country Studies web- Modern Japan, 18681945: From the Meiji Restora-
site http://lcweb2.loc.gov/frd/cs/. Japan tion to the Second World War (2 vol; 2001), 1376

9 Further reading
10 External links
Allen, George. Short Economic History of Modern
Japan (3rd ed. 1972) online 1946 edition Videos on Japan's Relations with the US from the
Dean Peter Krogh Foreign Aairs Digital Archives
Black, Cyril, ed. The Modernization of Japan and
Russia: A Comparative Study (1975)
Ericson, Steven J. The Sound of the Whistle: Rail-
roads and the State in Meiji Japan (Harvard Council
on East Asian Studies, 1996)
Ferris, William W. Japan to 1600: A Social and
Economic History (2009) excerpt and text search
Flath, David. The Japanese Economy (3rd ed. Ox-
ford UP, 2014), on current conditions

11 Text and image sources, contributors, and licenses

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