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Japan's Decade-Long Recession Kobe University Repository : Kernel タイトル JAPAN'S DECADE-LONG RECESSION Title 著者 Uematsu, Tadahiro Author(s) 掲載誌・巻号・ページ Kobe University Economic Review,45:19-29 Citation 刊行日 1999 Issue date 資源タイプ Departmental Bulletin Paper / 紀要論文 Resource Type 版区分 publisher Resource Version 権利 Rights DOI JaLCDOI 10.24546/81000919 URL http://www.lib.kobe-u.ac.jp/handle_kernel/81000919 PDF issue: 2021-10-07 Kobe University Economic Review 45 (J 999) 19 JAPAN'S DECADE-LONG RECESSION By TADAHIRO UEMATSU This paper attempts to analyze the structure of the decade-long Heisei Recession by clarifying the relation of the causes and effects of the recession from the start of the bub­ ble in the 1980s to the end of the recession in 1999. It is revealed that the reason why the Heisei Recession was so long and so severe lies in the fact that, because two causes of the recession (the continuous fall of land prices and the insolvency of financial institu­ tions) were new for the Japanese, the government made errors in finding policies appropri­ ate to overcome the recession. It was after passing the "nightmare" in the autumn of 1997 that the government established a system of financial stability which enabled the Japanese economy to get out of this recession. However, there are several tasks with which the Japanese economy has to cope in the near future. 1. Introduction Ten years have passed since the Japanese economy fell into the current Heisei Reces­ sion. It has been the longest recession since W orId War II. Rapid economic growth at an average of 10% per year was enjoyed in the 1950s and 60s, and moderate growth at an average of 5 % per year was achieved in the 1970s and 80s. Both were the highest among advanced countries in those decades. In contrast to this record, that of the 1990s is a very miserable one with a growth of about 1% per year. It has not been fully understood why the Japanese economy was caught in such a prolonged and severe recession in the 1990s. This paper is a short essay that attempts to analyze the process and structure of the decade-long recession. 2. The Bubble Economy It is clear that everything began with the bubble economy in the second half of the 1980s. That bubble economy was different from the booms in the 1960s and 1970s in two ways. First, during the bubble boom, the Japanese yen sharply appreciated from 240 yen per dollar in August 1985 to 122 yen per dollar in December 1987, that is the yen appreci­ ated 100% within 30 months. Usually an economy with such a sharp currency apprecia­ tion would suffer from huge trade deficits and a severe recession. But the Japanese econ­ omy in those days did not follow the usual course. There were two reasons for this. First, Japanese companies exporting products such as automobiles, office machines, cameras or semiconductors endeavored to reduce the costs of production and succeeded in preventing a decrease in the amount of exports, so that Ja­ pan's trade balance kept it's surplus: 46.1 billion dollars in 1985, 82.7 billion dollars in 1986, 79.7 billion dollars in 1987, 77.6 billion dollars in 1988, 64.3 billion dollars in 1989, and 52.1 billion dollars in 1990, or 10.9 trillion yen in 1985, 13.7 trillion yen in 1986, 11.6 trillion yen in 1987, 9.9 trillion yen in 1988, 8.8 trillion yen in 1989, and 7.6 20 TADAHIRO UEMATSU trillion yen in 1990 (on a customs clearance basis). Secondly, the Bank of Japan switched to an easy monetary policy by setting the pub­ lic discount rate very low in order to prevent a recession occurring in Japan. As a re­ sult, the growth rate of the money supply (annual average outstanding) rose from 8.4% in 1985, to 8.7 % in 1986, 10.4% in 1987, 11.2% in 1988, 9.9% in 1989, and to 11.7% in 1990. These two factors together brought about a unique economic situation, that is, (1) hav­ ing highly appreciated, the yen had a strong purchasing power for foreign products and real estate, and (2) while both commodities prices and service costs remained very sta­ ble, asset prices, such as real estate and share prices, rose sharply in Japan. This is because the companies and financial institutions which had ample funds in­ vested them in goods that were anticipated to rise in price, such as the real estate of cen­ tral Tokyo, the resorts of Hawaii, high-priced jewelry and Vincent van Gogh's "Sunflow­ ers" and etc .. Japanese companies also bought companies and real estate in the U.S. and European countries, which caused economic friction between Japan and those countries. Ordinary people who dreamed of becoming rich through speculation rushed to securities companies to buy shares. As a result, both land prices and stock prices rose sharply in Japan. For example, the posted prices of land (the average index of land prices throughout Japan as surveyed by the National Land Agency) rose by 21.7% in 1987, 8.3% in 1988, 16.6% in 1989, and 11.3% in 1990, and stock prices (the Nikkei average index of 225 major issues) rose by 42.6% in 1986, 15.3% in 1987,39.9% in 1988,29.0% in 1989 and recorded their histori­ cal peak of 38,915 yen at the end of 1989. The period of the bubble economy lasted for 52 months from December 1986 to March 1991, which was Japan's second longest boom, exceeded only by the Izanagi boom which lasted for 57 months from November 1965 to July 1970. 3. Corruption, Illegal Compensation and Bad Loans At the beginning of the 1990s, the bubble burst and both land prices and stock prices fell. Land prices (the posted prices of land) declined by 4.6% in 1991, 8.4% in 1992, 5.6% in 1993, and by 3.0% in 1994, and the Nikkei Average stock price index dropped by 38.7% in 1990, 0.4% in 1991, and 26.4% in 1992. After the collapse of the bubble, three kind of problems were revealed, i.e. bribery scan­ dals involving senior politicians and top bureaucrats of the central government, illegal compensation of losses caused by stock dealing, and an increase in bad loans made by banks. The bribery scandals included several different affairs. (1) First uncovered was the Re­ cruit Affair in which the Recruit Company sold the stocks of a subsidiary company to sen­ ior politicians, high-ranking bureaucrats of the central government and managements of big companies at a low price before listing its shares on the market, in order to enable them to earn a profit of the difference between the price before and after listing. As the re­ sult of an investigation, the Vice-Minister of Education and the Vice-Minister of Labor with a former Chairman of NTT (Nippon Telegraph and Telephone) were arrested and the Prime Minister (Noboru Takeshita), and the Ministers of Finance (Kiichi JAPAN'S DECADE-LONG RECESSION 21 Miyazawa), Justice (Takashi Hasegawa), and the Economic Planning Agency (Ken Harada) were forced to resign because they received a lot of money and unlisted stocks from the Recruit Company. (2) The Tokyo Sagawa Express Affair was exposed in 1991 and Shin Kanemaru (Vice­ President of the LDP (the Liberal Democratic Party) at that time and nicknamed the "Don" of the LDP) was arrested because he received 500 milion yen from the Tokyo Sagawa Express Company, and he resigned as a member of parliament. As mentioned later, the downfall of Kanemaru caused the LDP to lose its position as the ruling party, which in effect brought about the chaotic situation of Japanese politics that remains un­ til the present. (3) The Aya Group Affair, in which the Aya Social Welfare Group gave a bribe to bu­ reaucrats of the Ministry of Health and Welfare in return for getting permission to build new facilities, was exposed in 1996. A few top bureaucrats, including a former Vice­ Minister of the Ministry of Health and Welfare, were arrested and one was dismissed from his post. (4) The MOF and the BOJ corruption Affairs were made public after 1995; that is high ranking financial inspectors of the Ministry of Finance and the Bank of Japan had secretly announced the date of their inspections beforehand to the staffs of specific com­ mercial banks in return for hospitality and entertainment. As the result of investiga­ tions, several members of the MOF and the BOJ were arrested and took responsibility for these cases, the Minister of Finance (Hiroshi Mitsuzuka) and the Governor of the BOJ (Yasuo Matsushita) resigned in March of 1998. Lastly, 98 of the BOJ staff and 112 of the MOF staff were punished within their institutions in March and in April of 1998 respectively. Such a large scale, in terms of the number of people and the amounts of money, of cor­ ruption of the politicians and bureaucrats of the central government had not occured since World War II in Japan. Hearing the corruption cases occur one after another, ordi­ nary people felt acute indignation Secondly, illegal compensation cases for stock dealing losses were uncovered twice. (1) The first incident was exposed in 1991, in which four major securities companies (Nomura, Nikko, Daiwa, and Yamaichi) provided 128 billion yen in total to 198 compa­ nies and nonprofit organizations, and another 13 securities companies provided 44 bil­ lion yen in total to 386 companies and nonprofit organizations.
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