JAPAN The Frozen Economy Country

Read full article at The Capital.

JAPAN is one of the countries registered in ASEAN (Association of Southeast Asian Nations, which is a political and economic union of 10 member countries in Southeast Asia).

We are more familiar with Japan because of its unique culture, such as Anime (2D cartoons) and their many products on the market, such as TOYOTA, HONDA, SUZUKI, etc.

Behind Japan’s fame, there are some interesting facts about their ECONOMY. Gross Domestic Product / GDP Japan (a measure of economic income and expenditure of the total market value of all goods and services produced in a country in a certain period of time) which has been stagnant for the last 40 years.

America’s GDP

Indonesian GDP

Japan GDP

The GDP of America and Indonesia continues to increase, but the GDP of Japan does not increase and is even stuck. Calculating GDP definitely requires several aspects:

Consumption is also referred to as consumption expenditure which is defined as the behavior of people in spending part of their income to buy something. Consumption is an important aspect of calculating GDP. The following is a comparison of consumption levels:

America’s Consumer Price Index (CPI).

Indonesian Consumer Price Index (CPI).

Japan’s Consumer Price Index (CPI).

Consumption in America and Indonesia has always increased every year, but public consumption in Japan has started to stop/stuck since entering 1990 until now.

The Japanese Economic Stuck started with the Plaza Accord. The Plaza Accord is a 1985 agreement among the G-5 nations:

  1. French
  2. Germany
  3. United States of America
  4. English
  5. Japan

The Plaza Accord aims to manipulate exchange rates by depreciating the US dollar relative to the Japanese yen and the German currency. The goal of the Plaza Accord is to correct the trade imbalance between the US and German markets and the US and Japanese markets.

But the increase in the yen against the dollar contributed to the recessionary pressures of the Japanese economy. A strong yen causes major short-term shocks for Japan’s export-based industries as Japanese exports become more expensive. As well as having to create scenarios to make people want to consume more. To offset the impact of this shock, the Japanese government embarked on a massive campaign of expansionary monetary and fiscal policies in an effort to boost the domestic economy. One of the policies implemented was lowering interest rates. This stimulus causes many companies to borrow money and cause defaults in the future

Japanese interest rate

In 1987, Japan reduced the interest rate quite a lot to more than 2%, then raised the interest rate again by more than 3% to the 6% level in 1990. After the reduction in interest rates, many people and companies borrowed money from banks on a large scale, but after several years the interest rate was increased again rapidly which caused many companies to fail to pay off their interest debts. The economic shock caused the property and stock markets to crash massively. This incident gave people bad memories about investment and made people tend to reduce their consumption and made people save.

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JAPAN The Frozen Economy Country was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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