Dark side of japan : The Lost Generation
Dark side of japan : The Lost Generation
The Lost Generation: A Tale of Japanese Economic Turmoil (Part
Midas Touch Wealth Advisors
Boutique for Wealth Management
Published Jul 27, 2023
Imagine living in a country where prices consistently decrease daily, allowing you to purchase the same products at discounted prices later on. It sounds like a fairy tale! Doesn't it?
Today, we embark on a fascinating journey into the economic story of Japan, a nation that has experienced this unique phenomenon over the past 40 years. Join us as we delve deep into the captivating twists and turns of Japan's economy, and unravel the remarkable challenges it has faced.
The Rise: Rebuilding After World War II
After the devastation of World War II, Japan encountered immense economic struggles. Yet, through the unwavering determination of its hardworking people, a modernized government, and the support of the United States, the country staged an extraordinary comeback.
The Storm Brews: Keiretsu and Soaring Dollar
While Japan experienced unprecedented prosperity, an underlying storm began to silently brew. Enter the keiretsu, powerful business groups that thrived on government assistance and grew exponentially.
Simultaneously, significant economic changes implemented under President Ronald Reagan in the United States caused the value of the U.S. dollar to skyrocket.
The Plaza Accord: A High-Stakes Meeting
In September 1985, financial leaders from influential nations gathered at New York City's iconic Plaza Hotel. This pivotal meeting, known as the Plaza Accord, aimed to confront and resolve the pressing economic challenges of the time. The United States, Japan, West Germany, France, and the United Kingdom collectively agreed to devalue the dollar, striving to restore global competitiveness. Little did they anticipate the profound impact this decision would have on Japan.
The Lost Decade: A Dark Period
The depreciation of the dollar led to the rapid appreciation of the Japanese yen. Hence, Japan witnessed a situation similar to the US, where its goods got expensive for other nations to buy and as the Japanese economy is primarily driven by exports, the decrease in the amount of exports hurt their economy real bad and the nation entered into a recession in 1985.
Japan entered a tumultuous period known as the 'Lost Decade', characterized by economic stagnation and missed opportunities. The bursting of real estate and stock market bubbles inflicted severe pain upon the nation's economy.
Their growth rate was a mere 1.2 % on average from 1995 to 2002. This was much lower compared to other developed nations of that time.
One of the key problems was that people became cautious and held onto their cash instead of investing it. They believed that keeping their money on hand would be more profitable, as they expected prices of goods to decrease in the future. This led to a vicious cycle of deflation, where the lack of money circulating in the economy caused prices to drop even further. It seemed like everyone was caught in a loop, holding onto their cash rather than investing it, worsening the situation.
A Vicious Cycle: Fear, Deflation, and Stagnation
During this protracted period of economic hardship, Japan found itself trapped in a vicious cycle. Fear gripped the population, causing people to hoard their money instead of spending or investing it. The prevailing belief was that prices would continue to decline, leading individuals to perceive it as more beneficial to hold onto their cash. Regrettably, this approach exacerbated the situation, as reduced consumer spending further drove prices down. The economy fell into a downward spiral, with prices continuously plummeting.
Societal Crisis: The Lost Generation
The economic downturn triggered a profound societal crisis in Japan. A whole generation of university graduates, known as the Lost Generation, faced immense challenges in securing employment due to widespread hiring freezes. Approximately 17 million individuals, accounting for 15% of Japan's population, encountered limited job prospects and endured economic uncertainty. Moreover, Japan's aging population added to the predicament, straining social welfare programs due to a smaller working-age population providing support.
Adding fuel to the fire, a troubling social phenomenon emerged known as Hikikomori. It refers to people in Japan who isolate themselves and withdraw from society for a prolonged period, often experiencing anxiety or depression. They stay at home, avoiding school, work, and social activities. This primarily affected men who chose to isolate themselves from society, retreating into seclusion. This had profound social implications, leading to significant issues that affected not only individuals but also communities at large.
Lessons Learned: Success, Innovation,
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