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WHY JAPAN WAS SO UNSUCCESSFUL IN SOLVING THE PROBLEM OF
DEFLATION OVER THE PAST TWO DECADES

A two decade long deflection exhibited in Japan was dismal based on collapsed growth
...
In exploring the Japanese deflation,
it is important to consider the microeconomic problems that appeared to have been the
causative facts on exhibited collapse of Japanese financial sector
...
According
to research, the three main sectors named above
...
Moreover,
during the exhibited two decades, it is imperative to state that Japan’s GDP was
constituted of over 20% of taxpayers full cost (Grenwood 2006)
...
In the annual report of Banking for
International Settlement, conventional wisdom (Makin 2003), Japanese situation was a
reminiscence of powerful two-way linkage between financial system and real economy
...
It is important to note that the unhealthy situation in Japanese
banking system by them was the genesis of the impediments to economic recovery
(Callen & David 2003)
...
Come 1990s, there was continues apparent decline in growth rate, a trend that
showcased disappointing GDP
...
When considering the change in GDP
as a deflector measure, it could be possible to assert that Japanese economy has
undergone deflation since the third quarter of 1994 except the second quarter of 1997,
in which there was meager increase in consumption tax of 2% that conversely led to a
mild increase in GDP deflator (Zandi 2012)
...
In order for Japan to effectively recover from inflation, there
has to be an increase in output gap, this is a key predicting fact in macroeconomics
...

In contrast, it is a reality that within the two decades, Japan’s relative strength within
aggregated prices and movement in the country’s assets greatly deteriorated
...
But come the first nine months of the year 1990, the Nikkei lost averagely 50% of
its value (Flath 2000)
...

Other than the Nikkei 225 case, the land prices in Japan followed similar trend in
qualitative patter
...

But, it is unfortunate that the trend never continued afterwards, come 2003, the land
prices fell back to what was realized in 1980s (Itō & Mishkin 2004)
...
In fact, it was unrealistic since the land prices by
2003 fell below an average of 45% of peak value; considering the price drops among

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the major cities in Japan, it is imperative to state that commercial real estate prices
declined by more than 60% of the peak values (Comley 2015)
...
Such strategy would have salvaged
japan from the financial crisis, but decline in commercial real estate prices adversely
affected the cost of land leading to unbearable economic situations in Japan (Grenwood
2006)
...

Feedback from financial system to the real Japan Economy
There were lack consensus on how issue to do with financial systems could have
contributed to stagnating economy
...

According to research, it was evidenced in 1998 and 1999 that several major financial
institutions in Japan failed which intensified the stagnation, hence created much
problems
...
However, it is realistic that the main causative factor to the great
recession in japan was not based on lack of credit facilities, since foreign banks that had
not been operational in the country by early 1990s and the newly chartered banks would
not have been crippled by asset price and corresponding huge stock of nonperforming
loans (Flath 2000)
...

This was not the case, hence it could be explicitly stated that much feedback would be
focused on disagreement or fallout from effective and considerable policies in Japanese

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banking sector that would have enabled keeping and extending credit facilities to
distinct firms even if there were no realistic prospects of being repaid back (Mikuni &
Murphy 2004; Calverley 2011)
...
For example, it was a common practice that the construction jobs dropped
sharply while job destruction was relatively low (Comley 2015)
...
This conversely implies that exhibited increase in zombie
firms explicitly exemplifies the reasons for overall slowdown in Japan’s economy (Koo
2011)
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In this case, it is imperative to
state that Bank of Japan lowered its interest rates and conversely expanded its
monetary policy aggressively, but by 1990s it was already below zero virtually as 0
...
The rates fell further and by 1999 it was at zero flat, although by the year
200 and 2001 it surpassed zero mark in the presence of deflation, while actual interest
rates were higher than zero (Grenwood 2006)
...

Moreover, within conventional measures, there have been exhibited expansionary
monetary policy likewise to fiscal policy
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It could be argued that charging low interest rates partially enhanced the banks’ growth,
but there were much debates that never bore fruits as far as closing down insolvency
banks were concerned; thus implying that zombie borrowers are among people
strangulating Japan’s economy (Baig 2003)
...
In addition,
allowing banks including the worst bank to effectively participate in attracting support
financing for their insolvent borrowers (Flath 2000)
...

Whilst sequence of governance agency is effectively created help banks through
disposal of non-performing loans, this is effective in enabling troubled firms to mobilize
resources which are redundantly, thus mobilizing resources from bankrupt firms (Makin
2003)
...
It was
challenging that the IRCJ did not manage to effectively salvage the situation in Japan
with emphasis about on exhibited deflation that adversely affected the country
(Grenwood 2006)
...
In order for the country to escape deflation, it is imperative to state
that much emphasis should be placed on management of expectations in inflation
targets and price-levels (Mikuni & Murphy 2002)
...
This could be used and effective instruments for monetary policy
...
But under the new Governor Fukui in 2003, more improvement has

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been observed, but there is still need to study more literature on optimal level of
inflation, cost of deflation, and corresponding relative merit of price-level versus targeted
inflation (Kuttner and Posen 2001)
...
The country need to adopt bolder measures
in order to overcome the scourge since the fiscal expansion in the country had failed
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It is imperative to state that Japan’s governance
should adopt strategies not for trials, unlike the monetary expansion that was adopted
for a short time, withdrawn and is being tried again
...
Currently, it is realistic that the Japanese
economy is enjoying export-led recovery that commenced in (2003-08 and 2009-13)
...
The government of Japan should
ensure that banks, firms, and households are relieved from over-leverage from the
bubble in order to effectively achieve quick recovery
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, 2003
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Nanjing-China: International Monetary Fund
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, Takeo Hoshi and Kashyap, Anil K
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“Zombie Lending and
Depressed Restructuring in Japan
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Callen, T
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O
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Japan's Lost Decade: Policies for Economic Revival
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Calverley, J
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When Bubbles Burst: Surviving the Financial Fallout
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Comley, P
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Inflation Matters: Inflationary Wave Theory, its impact on inflation
past and present
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New York- USA: Pete Comley
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, 2000
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Grenwood, J
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Monetary Policy and the Bank of Japan, Ch
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Kemt Matthews and Philip Booth, IEA & John Wiley & Sons
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and Edward C
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, 2002
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” Review of
Economic Dynamics
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206 –35
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& Mishkin, F
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, 2004
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Tokyo-Japan: National Bureau of Economic
Research
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C
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The Holy Grail of Macroeconomics: Lessons from Japans Great
Recession
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Kuttner, K
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and Adam, S
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, 2001
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” Brookings Papers on Economic Activity
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93–185
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H
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“Is Japan Recovering?” and other papers on Japan
at http://www
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org/scholars/filter
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40,type
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asp

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Mikuni, A
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R
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Japan's Policy Trap: Dollars, Deflation, and the Crisis
of Japanese Finance
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Mikuni, A
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T
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“Japan’s Policy Trap: Dollars, Deflation and the Crisis
of Japanese Finance” The Brookings Institution
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, 2003
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TokyoJapan: Brookings Institution Press
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, 2012
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New York: FT Press

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