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JAPAN: Plaza Accord, Rising Debt & Japanese Economy - YouTube
Channel: Economic Raven
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japan
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the country known for bullet trains
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electronic gadgets anime and manga
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vending machines frequent earthquakes
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charming geishas and the gigantic
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mount fuji the country faced severe
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destruction from allies in world war
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ii but went on to become one of the
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biggest economies in the world
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the same allies that destroyed japan
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gave them free access to their markets
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to help them rebuild the country
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japan saw an average annual growth rate
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of 9 between 1955 to 1973 which was an
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economic miracle
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especially for a war-torn country it saw
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another 4
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average annual growth from 1973 to 1990
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and this total of three decade economic
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prosperity made japan a financial
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powerhouse
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this era could be called a golden period
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in the history of japan
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the country was dominating multiple
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industries like automobiles
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semiconductors
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the entertainment industry and the
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consumer electronics industry from
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cameras to video games and from walkman
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to pocket radios
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companies in japan were prospering they
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were paying on a piecework basis and
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above all
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people's living standards were uplifted
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and their savings were on the rise
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japan reached around 75 percent of the
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usa's gdp
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at that time which was astonishing for a
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country half the population of the us
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and smaller than the state of california
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japan's growth rate was so remarkable
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that it led to optimistic predictions
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that sooner or later it will cross the
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economy of the united states to become
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the biggest economy in the world but it
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didn't happen
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the country instead faced an economic
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crisis that put the growth to a halt
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but what went wrong
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in the early 1980s the us dollar was
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appreciating against the japanese yen by
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a significant margin making the u.s
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exports expensive and imports cheaper
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that had a bad effect on the trade
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deficit of the us
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companies in the u.s who had difficulty
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selling their goods to the outside world
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complained about it
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what did it have to do with japan well
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the u.s did something to turn this
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in their favor a meeting was held at the
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plaza hotel in new york among the g5
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countries that included the us
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japan uk germany and france
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the purpose of the meeting was to
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depreciate the u.s dollar against the
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japanese yen and west germany's mark
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we don't want to go into the details of
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why japan signed into this in the first
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place but
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that was a turning point the sudden rise
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in the value of yen had a dramatic but
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unforeseeable and unintentional effect
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it negatively impacted japan's export
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industry who had a big chunk of its
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total exports going to the u.s consumers
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companies in the us were happy but
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companies in japan
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well not so much how did the country
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tackle it
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there are two ways monetary policy and
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fiscal policy
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monetary policy is implemented by the
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central bank that involves changing the
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interest rates while fiscal policy is
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related to government spending and taxes
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the japanese central bank realized how
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at 50 percent devaluation of the dollar
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against the yen in just a few months
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could affect the competitiveness of
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japanese companies
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not only the export sector was affected
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by the devaluation of the dollar but the
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appreciation of yen reduced the cost of
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imports and resulted in lowered
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inflation headed towards deflation
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in the previous video we saw how big
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numbers of inflation are bad and central
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banks usually try to target a little
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amount of inflation
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usually around 2 percent that keeps the
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economy growing but
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deflation on the other hand is a
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nightmare and central banks do
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everything to not let that happen to
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tackle the situation they applied
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monetary policy by lowering interest
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rates which is a very reasonable and
[220]
usual thing to do
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under such circumstances the idea was to
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increase the inflation rates to healthy
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numbers by boosting domestic demand
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and consumer spending
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what happens when the interest rates are
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lowered simple
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more people want to take loans for cars
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and homes businesses and so on
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because it's easier to return this
[243]
exchange of money and consumer spending
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stimulates the economy
[247]
japanese banks encouraged by the
[249]
authorities began to lend money more
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easily to companies and individuals so
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borrowers could spend and invest that
[255]
money in the economy to give it a boost
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the people of japan are labeled as
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savers and the country was already a big
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creditor
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they borrowed this money and spent it
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mostly in two sectors the capital market
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and the real estate
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as it was easier to borrow people used
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the bot properties as collateral to
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borrow
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more and more making the real estate and
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stock prices skyrocket
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big corporations including the ones who
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were impacted badly by the plaza accord
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agreement
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also got involved in taking huge loans
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and investing them in shares and the
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real estate market
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the more they got returns the more they
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borrowed and the more the prices went up
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and the cycle kept on repeating and a
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bubble began to develop
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although on the apparent it looked like
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the economy was booming
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at this point the economy looked like a
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charming geisha
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but it was becoming a giant bubble as
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big as a sumo wrestler
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the debt kept on increasing the prices
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skyrocketed and became out of reach for
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younger people and the company's
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competitiveness and export industry was
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on a constant decline
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the central bank realized that it was
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becoming a bubble and they tried to
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intervene by updating the monetary
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policy
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but things had already gone out of
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control as the tokyo stock exchange fell
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by
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60 percent companies profits reduced
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because they were profiting more from
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the shares market in the real estate
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market instead of selling their products
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the economy stagnated for the next
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decade from 1991 to 2001 which is also
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referred to as the lost
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decade which turned out to be multiple
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decades because the stagnation persisted
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and the economy moved at a snail's pace
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for three decades
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its influence remained intact even to
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this day making it one of the most
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talked about topics in economics
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japan has the highest life expectancy in
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the world at 85.
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it has the world's biggest aging
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population with around 27
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of the total population over 65 years
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old which accounts for
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over 34 million people the aging
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population lowers the demand factor in
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the economy
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because older people don't buy new cars
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and houses and consumer products
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compared to the younger ones
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also they take more retirement benefits
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compared to what the government receives
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in taxes from the working population
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the population is also shrinking which
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will be a major problem in the coming
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years
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japan has one of the lowest fertility
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and birth rates one way to sort this out
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is to let more immigrants in
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but the japanese are very homogeneous
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and conformist
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it's difficult for people to go against
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cultural norms
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combine this with the language barrier
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and the unwelcoming immigration policies
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and you have
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pretty much got a country that is
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unattractive for skilled immigrants and
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difficult to sail upwards
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disaster prone land is also unattractive
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as a real estate investment for
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foreigners
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there has been a naive debate that the
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low birth rates and labor shortage will
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be replaced by robots
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automation would probably fix a few gaps
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but opening up the doors for immigrants
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seems like a valid thing to do
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but in short the japanese would prefer
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to work with an emotionless machine than
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an actual human being from another
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country
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if it sounds too far-fetched then you
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should see people who have married anime
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characters
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depopulation impacts rural areas more
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than cities
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rural areas receive more government
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subsidies compared to their population
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hospitals are almost empty trains are
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seeing negligible people in some areas
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and it's hard to justify the
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construction of roads in some places
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and even if they embrace immigration
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they would be inclined to live in the
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cities
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also people in rural areas look for jobs
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in the big cities
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agriculture is dying down as the newer
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generation is uninterested in it and
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very few who work in the field are from
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the old age group
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buddhist temples are slowly ceasing to
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exist and so are the priests
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many local festivals and activities are
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already dying down due to the lack of
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people
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the rail industry will find it more and
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more difficult to get any profits in the
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countryside
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kiretsu is a collaborated relationship
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among some companies that give them a
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monopoly like exclusive control over the
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supply
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this makes the free market not so free
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this is backed by the government and it
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may appear that the government has
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created an environment beneficial to the
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businesses but it is detrimental to the
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economy in the long term
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it also pushes away the innovators and
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entrepreneurs who can't compete with the
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low-cost model like keretzu
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it also discourages and demoralizes the
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non-japanese companies as they won't
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invest seeing an obvious disadvantage
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against the keretzu
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long-term employment sounds good but it
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is a problem too
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companies hire college graduates who
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usually stay employed for a lifetime
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millions of workers are using this
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system for their benefits without
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updating their skill set and hang around
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until they are retired which is
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counterproductive in the era of
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technological development where skills
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get outdated quickly
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while companies in japan have reduced
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this approach to a significant low
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its effect still exists it seems like
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japan failed to level up its game when
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it comes to the industries it was
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leading in earlier
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its asian competitors like china taiwan
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and korea
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started to give it a tough time in price
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warranties and a more diverse range of
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products
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the yen carry trade is another factor
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contributing to the economic decline
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the low interest rates make the
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investors borrow money at a low cost yen
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and invest it in high paying currencies
[554]
like the us dollar
[555]
this makes the demand for the yen higher
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than what the central bank would want
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this shrinks the exports and halts the
[561]
necessary minimum inflation required to
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keep the economy running
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japan has become the largest holder of
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u.s debt multiple times in the last
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decade
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the country does this to make the yen
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low relative to the dollar so it can
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improve its exports
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japan's energy consumption relies
[576]
heavily on imports of crude oil and gas
[578]
the country lacks domestic fossil fuel
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resources except for coal
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in a post-oil dependent era japan would
[584]
have to look for other sources to meet
[585]
its energy demands
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it started to shift towards nuclear
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energy earlier but fukushima nuclear
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plant disaster sent
[591]
alarming signals to the general public
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who oppose nuclear energy
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earlier we talked about monetary policy
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that central banks implement
[603]
next is fiscal policy which is just a
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sophisticated term for saying government
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spending and taxation
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a government can boost an economy by
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lowering tax rates and increase
[613]
spending this means people and
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businesses would have more money which
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they will invest in businesses and
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employ more people
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this could be good for consumer spending
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and eventually economy could see growth
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but if you spend all this money on
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projects and benefits that don't give
[626]
enough
[627]
output then you are just going to go
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into debt and japan has gone into debt
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like no
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other the lower a country's debt to gdp
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ratio the better
[636]
a debt to gdp ratio of over 75 percent
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for a longer period could have a poor
[641]
impact on economic growth
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forget about the usa's 27 trillion debt
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sure it looks gigantic but it's almost
[648]
equal to the country's total gdp
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that means they can produce equal to
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what they owe on the other hand
[654]
japan's debt is over 250 of its total
[657]
gdp
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which is the highest in the world which
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makes it the most
[662]
indebted country on the planet with no
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end in sight
[665]
making it the land of the rising debt
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japan will stay relevant for a long time
[674]
borrowing more to stimulate the economy
[676]
is not going to buy back freedom
[678]
some are optimistic that japan has
[680]
recovered and entered the post bubble
[682]
era
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the stock market seems to be at good
[684]
levels and employment is low and so on
[686]
but the stagnation persists and there is
[688]
no spectacular growth indicating its
[690]
economy could trend towards growth
[691]
unless they take some drastic measures
[694]
which policy should be introduced to end
[696]
the stagnation and gear the economy of
[698]
japan towards long-term growth
[700]
we will do our best to reply to every
[702]
comment and question
[703]
thank you for watching
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