Japanese Economy Essay example

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Japanese Economy

The Japanese economy is the second largest in the world, behind only the American economy. As such, its decade long downward slide has many lessons the American economy can learn from. The difference between the economies is one of degree, not type. Our own economy has been faltering of late, bringing fear of recession. The Japanese have been on that road for over ten years, and of late have been making aggressive moves towards a restructuring. This paper will look at the types of reforms planned in the Japanese economy, and more importantly if these reforms will be enough to pull a modern economy from the doldrums.

The current state of the Japanese economy has much to do with a failure to adjust. In
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The bank lowered already low interest rates to an effective rate of zero percent. In a familiar scenario, this has led to Japanese banks stampeding to get even more loans.

The Central Bank of Japan sees this as but one step in their new, more aggressive stance. They are to be applauded for this, as it involves coupling the lower rate with economic packages designed to give Japanese firms a way to upgrade their devalued equipment, thus boosting industrial output. One package set a two-year deadline for major banks to dispose of their riskiest bad loans. These loans were taken out by the banks during the easy lending period of the mid-1980's. In the view of many economists, these loans are the very thing crippling the Japanese economy and holding the country back from a successful turn-around (The 21st Century Public Policy Institute, 1998).
It seems that it would have been more appropriate for the Central Bank to hold prime rates at the previous level. This, combined with the deadline for repayment of the riskiest debt, may have been just what the economy needed to attain serious growth. As it stands, however, there exists no plan to hike the rate back up. The rate lowering has already had negative effects. The Nikkei, Japan's main indicator of investment health is in danger of falling to a 16 year low. It appears that even the banks and investors know…