Over-Accumulation in Japan Alysha Low

The Rise and Fall of Japan’s Euphoric Bubble What was the “bubble”? Prices, especially in the stock market and real estate, were growing beyond their real value. Outcome: Asset price increase  further borrowing Countermeasure: increase in interest rates (3.8%  8.2%)

A Minsky-Fisher Perspective of Debt Deflation Debt Deflation: recessions and depressions are caused by debt rising because of deflation, which in turn, causes consumers to default on loans such as mortgages. Characterized by two prices: Current Output Capital Assets Possible solution? Reflation: return the price level to the level it was prior to the deflation.

Japan’s Phase of Debt Deflation Japan faced this “Paradox of Thrift” Japan’s escalating public debt-to-GDP ratio: The primary deficit The interest rate gap Secular Stagnation: 15% of GDP (1990) 140% of GDP (2012) If including all government agencies (post offices), the ratio would be close to 220% Fiscal stimulus has played crucial to stabilizing the market from going into a depression but still have yet to revive economic growth.

Possible Solutions and Dangers Depreciation of the Yen Improves export competitiveness Including negative real interest rates Stimulate investment Danger: Trade and currency wars Accumulation of foreign reserves (dollars) prevents the yen from appreciating.

Conclusion The past two decades of Japan’s economic history support the Minsky-Fisher Theory of debt-deflation Expansionary fiscal and monetary policies haven’t been able to overcome deflationary currents. Dependent on exports and disregard domestic surplus.