Considers whether Japan should be given extended credit, based on its economic situation.
Japan is currently in its worst recession since World War II. The country’s economy slowed dramatically in the early 1990s, after the bubble economy of the 1970s and 1980s, and has not yet recovered. This paper shows that Japan’s subsequent problems include declining Gross Domestic Product (GDP), failed stimulus packages, banking inefficiencies, ineffective interest rate policies, deflation, currency devaluation, and an aging population. The paper notes that its last bastion of hope, exports, are beginning to decrease and suggests that, given a consideration of all these factors, extended credit should not be given to Japan. The paper includes a graph.
Japan has resorted to currency devaluation – traditionally the last resort of a government in crisis to reverse deflation and to make its exports more competitive. But Japan’s devaluation tactics have had little impact. This is because it would take a hefty tumble in the currency to produce even a modest upturn in prices and economic output. Without a devaluation of at least 20% – far more than currently looks likely – Japan’s economy won’t feel a thing. After each attempt to lower the value of the Japanese yen inflation failed to pick up and the country stumbled closer to crisis. One of the few positive notes regarding the Japanese economy has been that the country has no foreign debt to speak of and is the world’s largest foreign exchange reserve holder.