Why Does Japan Faces Deflation?

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Submitted By ladayakimchuk
Words 1970
Pages 8
Deflation in Japan impacts economical growth and damages the financial health of the banking system. It is a unique phenomenon that intrigues many economists. Japan has the third largest economy in the world, yet it is unable to find effective ways out of stagnation and deflation. There are many opinions regarding deflation, its causes, and affects. However, this paper covers only a few that interested me the most. It covers factors that contribute to deflation such as high corporate rate, strong yen, and trade surplus.

Why does Japan face deflation?

According to the World Factbook, Japan has the third largest economy in the world with a 2011 GDP of $5.85 trillion US dollars. It is one of the largest exporters of goods in the world, which contributes to a consistent trade surplus for the country. China, one of the primary Japan’s trading partners, has gained the largest share of Japan’s import’s market due to significantly lower price of goods. Japan is also among the world’s largest and most technologically advanced producers, dominating the export of electronic equipment, machine tools, steel and nonferrous metal, ships, motor vehicles, chemical, textiles, and processed foods. Another important factor contributing to the strength of the Japanese economy is the robotics industry; it possesses more than half of the world’s “working robots” (CIA, 2012). The agricultural sector is small, yet produces the highest crop yields in the world. It is highly subsidized, protected, and considered as an area of national pride (CIA, 2012). Rapid economic growth, high household consumption, and low interest rates lead Japan to the economic bubble known as the Asset Price Bubble, which started in the late 80s and lasted to the early 90s. Due to the asset bubble, stock prices and real estate…...

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