Up? Down? Save? Spend? The full story.

Published by: Fatma AlSayegh

28 November 2016

Between the 1960’s and 1970’s, an increase in exports played a major role in Japan’s economic expansion. During the 1970s, the world’s third largest gross national product was given to japan, behind the United States and the Soviet Union.

During the 1980’s, the Japanese were leading with the advancement in computer processing, while putting an emphasis on telecommunications and manufacturing automation. They became known for producing good quality cars, thus the Japanese economy shifted away from main activities like agriculture and mining and more towards automation and computers.

However, the “Lost Decade” was named after the years 1991 through 2000. During the “Lost Decade”, prices gradually fell. As they entered the next decade, prices still remained low and the lost decade became the two lost decades.

Japan’s economic growth of 1970 stopped suddenly at the start of 1990 due to several things, including the actions done by the Bank of Japan, the stock market crash, and the increase of unemployment. The effect it had on the Japanese was limited, as it was in their nature to save not spend, so their standard of living did not decline from what it was in the 1980s. In fact, people claim that Japan performed better during the lost decades than the United Sates.

During the 1970’s, the inflation in Japan went from 6.42% in 1971 up to an annual average of over 23% in 1974. By 1979, the inflation rate had fallen to 3.77%. The last spike in Japan’s inflation was in the 1980’s at 7.82%, and from that year and forward, the Japanese inflation kept falling steadily until it was non-existent at 0.11% in 1987.

By the next 4 years after 1987, Japanese inflation increased and by 1991 it reached an annual average of 3.28%. That declined over the course of 4 years and by 1995 the inflation rate was -0.10%. By the course of 18 years from 1995-2013, Japan had battled with deflation with only having 1997 and 2008 having inflation above 1%.

In 2014, prices rose 3.2% in April for the first time in 23 years, following an increase in sales tax from 5% to 8% on 1 April. Policymakers have said the key to reviving the country’s economy from deflation is to increase prices.  The increase in price led to a decrease in consumer demand which led to a decrease in business production.

To reverse this ongoing trend, the government had set a target of a 2% inflation rate. The measures the government took, which includes increasing the country’s money supply, increased the prices in the country for 11 months in a row. The government hoped that once prices started to increase, it might influence consumers and businesses to spend not save money. But people have concerns that this inflation may cause a decline in spending.

Data also showed that household spending fell 4.6% in April, which followed a 4.4% decline in retail sales during the same month. Analysts said that the decline in spending was partly due to consumers rushing to spend money before tax rises.

“Consumer spending has declined as expected in April, but this is likely to be minor blip and will not affect the ongoing recovery,” Martin Schulz, of Fujitsu Research Institute “Both consumer spending and retail sales will start rising in the latter half of the year.”

During 2016, prices had increased 0.1% in October, which is the first rise in eight months.

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Resources:

http://inflationdata.com/articles/historical-inflation-rates-japan-1971-2014/

http://www.bbc.co.uk/news/business-27615551

https://www.bloomberg.com/news/articles/2015-02-26/japan-s-inflation-rate-slows-more-than-forecast-in-january

http://www.tradingeconomics.com/japan/inflation-cpi

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