Tutorial 4 Notes Essay

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Business in Asia Tutorial Program Semester 2, 2014 Guide Notes Tutorial 4: Japan: Changing business environment - growth, stagnation and Abenomics 1. Outline very briefly the main factors that led to the bubble economy of the 1980s and its crash? The appreciation of the Yen following the Plaza Accords under US pressure and the policy responses.  Japanese industries lost international competitiveness and the economy slowed. The government loosened monetary policies to counteract this and stimulate the economy.  The supply of money expanded, this money was invested in domestic assets (real estate and stock market) whose prices went up; as their prices went up people invested more funds, prices went up even more, then people invested …show more content…

(b) Japanese investors do not see any better investment options. In theory they could invest in foreign markets. But in practice there has been strong ‘home bias’ in investment, and many large pension funds etc have been managed by bureaucrats who have been very conservative. International conditions have been very volatile and Japanese yen has been seen as a ‘safe haven’ currency – because Japan as a country is not an indebted country, say like the US. So, the currency has tended to be quite strong, often appreciating; this reduced the attraction of investing abroad. 4. Why is the Japanese government in debt, but Japan is a net saver? Recall national income accounts. National savings are not the same as government savings. National savings = private sector (households + corporates) savings + government savings. Household and corporate savings have been, until very recently, consistently higher than government borrowings, though household savings have been coming down in line with demographic trends (aging population). Corporations (firms) have overall – some have invested in foreign countries through FDI - felt that investment options in Japan are poor, so they have been saving rather than investing. 5. Why have corporate savings increased in Japan, and what does it indicate about business expectations?

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