The Japanese economy has been suffering from a pro-longed recession since 1990 when the financial bubble burst. However, it is undergoing massive change, striving to find a new equilibrium in a globalized world.
The Japanese economy has been stagnant for more than a decade. However, today massive changes are taking place in Japan's institutions and business practices, to recover economic competitiveness globally. Another important objective in this process of change is to ensure that the Japanese society continues to provide secure and high level of living conditions.
The Japanese economy has been suffering from a prolonged recession since 1990 when the financial bubble burst. In addition to the negative or near-zero real GDP growth during this period, there has been a persistent deflation for the last few years, in which the Consumer Price Index has been declining over time (e.g., CPI annual year-to-year declines for the Tokyo metropolitan area for 1999-2004 are: -0.4%, -1.0%, -1.1%, -1.0%, -0.4% and -0.1%). Such deflationary trends of an economy as large as Japan's were never observed anywhere before.
The financial bubble that began to form in Japan in the mid-1980s is best characterized by a significant upward departure of the market value of certain types of assets (particularly stocks, land, golf club membership) from their fundamental value. For example, stock prices were much higher than their underlying firm value warranted. Many firms and households believed that the returns from investing in these assets would continue to increase. |
