By using their lines of credit Japanese companies invested in capital
resources, which made them capable of making more goods than international
competitors. Japan had provided high
quality products on reasonable prices and its products high demands in world
lead it to become a major economic power in world.
The yen was appreciated and investors made good money off financial
markets. Majority of people used easy credit to make property and homes making
a speculative real estate bubble. Because of that the real estate prices gone
skyward as 1 square foot rate of property in Tokyo was selling at $139,000.
Stocks prices were having no limits in rising up, because of reinvestment the
economy expanded more. In December 1989 the Nikkei reached all time high of
38,957.44. But in early 1990s Japan’s bubble started to sink. But that haven’t
happened in flash of time that happened slowly, stock and real estate values
decreased heading to Japan’s “lost decade”. People pulled out their investments
and started investing out of Japan because of that Japanese companies lost some
advantages of their competitiveness internationally. Low consumption rates
coupled with lower output and employment meant steady deflation.
Though the government lower the interest rates to practically nothing
that haven’t encourage Japanese people to put money in the banks. The
government subsidized banks and businesses at extreme end of failure,
supporting up the zombie organizations with little visible benefit to the
economy. Finally in 2003 the Nikkei started to climb again.
Lesson
Surely bubbles look wonderful while growing but when they sink, as they
have to sink they pulls back the economy more than a decade.
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