Understanding the Japanese Bubble Economy: Causes, Consequences, and Comparison with China, Slides of Economics

Download Understanding the Japanese Bubble Economy: Causes, Consequences, and Comparison with China and more Slides Economics in PDF only on Docsity! Insight into Japanese Bubble Economy docsity.com Content: 1. Define economy bubble • Use the graph analyze what is bubble • World’s first speculative bubble 2. Japanese economy from 1970s to 1990s • How did bubble form • Analysis the speculative activity in Japan • Analyze why Japanese pay much passion into housing not factory. 3. How to measure the bubble in Japan 4. View the essence of Japanese from the recovery of the bubble economy • Focus on Neo-Confucianism 5. Analysis the mistake policy in Japanese bubble economy • Compare the China’s policy in the situation 6. From Chinese real estate to analysis the situation before bubble burst of Japan and the status quo of China • Compare the two countries situation 7. Our group discuss the revelation from the Japanese bubble economy docsity.com Sample bubble pathes : ‘actual fundamentals bubblet "| | bubbie2 (Bp2 12 1986.06 1989.12 1993.06 docsity.com * a trade in products or assets with inflated values docsity.com Original speculative bubble in the world Tulip mania a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed docsity.com Mitsubishi invested $ 846 million to buy Rockefeller Center in New York Sony Corp. used $ 3.4 billion to buy the soul of America Hollywood Columbia Pictures Japan invested $ 6.5 billion in Hawaii docsity.com How the bubble formed? 1. U.S. dollar exchange rate was too high 2. large trade deficits in U.S. 3. Plaza Account 4. Japanese currency appreciation 5. Japanese low interest rate policy 6. Hot money docsity.com Symbol of bubble docsity.com The Issue of Japanese Speculation  In 17th century, speculators bought the harvests of Japanese rice famers.  oil prices go up, the price of rubber also goes up and as a result the demand for natural rubber goes up.  In 2011, Japanese earthquake strength yen appreciation. docsity.com Yen to US Dollar Exchange Rate “SR GSAS EERE. “Seth, AAESYIES), Saamage Asmara, ag “Sig “he SSSR ATA TR SAA ADDS Nemo wav sena sta seed mss My, ASTER ASERITE sao aa RE ERES “GREE, Matiheh Schon cher Renn ate hea La docsity.com The influence of yen appreciation  Japanese manufactures move more operations overseas.  Toyota, Honda and other Japanese companies try to move as much production overseas possible to cut costs.  IMF lowered its growth estimate of Japan from 1.8% to 1.5%.  1996~2006, about 220,000 manufacturing sites vanished, causing a loss of about 3 million jobs in Japan. docsity.com Why Japanese people passion to real estate not factories? social base The commercialization of the house Plaza Accord docsity.com MEASURE BUBBLE IN JAPAN docsity.com 100 80 60 40 20 Land price index Nikkei-index \ \. Commercial land \ prices, 6 large cities \ / \ we Nikkei-index \y~ (righthand scale) 40000 + 35000 _ + 30000 - 25000 20000 15000 - 10000 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 O7 98 5000 Q Demand uant it docsity.co The second mistake • In the autumn of 1987, the world economy grew rapidly . In order to deal with the inflation, the United States, West Germany, and some other countries had to raise interest rates. • on October 19, 1987, the "Black Monday" broke out in New York. By the intervention of Western countries, "Black Monday" presented only as a market panic. docsity.com The second mistake • The U.S. government was worried that if the Bank of Japan raised the interest rates, money can not promptly return to the U.S. and European markets. It may lead the international market to be turbulent once again, so they recommended Japanese government should rise interest rates later . • The Japanese government was also worried that raising interest rates may cause more international capital inflow to Japan to promote the appreciation of the yen, and causing the recession. docsity.com The second mistake • The Bank of Japan had decided to continue to implement expansionary monetary policy to maintain the discount rate unchanged in 2.5% . Until May 1989, Bank of Japan started to raise interest rates , but at this time, the "Black Monday" had lasted19 months, and the low interest rate policy had lasted 27 months. • Extremely expansionary monetary policy caused the Japanese economy full of cheap capital.These capitals were been channeled into the stock market and real estate market in the end. docsity.com The third mistake • In 1990, the Japanese stock prices fell sharply, it declined more than 40%, This decline of the stock market caused almost all banks, corporations and securities firms to huge losses. • Followed by the stock market, the real estate market bubble was also burst with the land prices dropped more than 46%. docsity.com Revival Japanese economy docsity.com Neo Confucianism  Self-Control or Asceticism  Back to Human Natures and Principles docsity.com small and medium enterprises F large enterprises Total small enterprises roportion| roportioy, Yopor tion! ropor tion the numebexr PES the numeber Pe the numeber PER the numeber Pe if ele £ 1: of employees sae erschy 2 (%6) ped ond 2 (%) Cee (96) (person) (96) = 20,057,922| 35.3 |4,776028| 13.2 |16,197,776| 44.7 [36,255,698] 100.0 ie 23,009,654] 63.5 - - 13,246,044) 36.5 |36255,698) 100.0 1999 131,197,419] 69.5 [10,982,725] 24.5 /13,707,332] 30.5 |44,904,751] 100.0 2001 = (29,963,365) 70.2 [10,793,230] 25.3 |12,692,598) 29.8 [42,655,963] 100.0 2004 (28,086,554) 71.0 | 9,856,741 | 24.9 |11,466,209/) 29.0 [39,552,763] 100.0 2006 (27,835,550) 69.4 19,293,107] 23.2 |12,291,430) 30.6 |40,126,980|) 100.0 SSRIS | GREE Bach ae RA See > https www. meti.gojp/hakusho/index html « docsity.com Why in real estate industry people would like to buy it when the price increased? docsity.com Real estate buy not buy Analysis from the demand function: D= f ( P, T, I, Pe, pr…… ) Original: price increase, demand decrease But: expected price >> price docsity.com Residential Housing Value Relative to GDP 0 ~—------ ane Jizanee housing arbiter gueadk a Chingse Housing 35 3a BE Bec cece eee enna eeeeue eee eue eens cueau ecu eueecteeweeeeeeweeseceweeseceweeseeewe agg LOC eee as. nausing alstide peak Lo BT TTT TTT TOOT GEPERREGEE SES EEEERERERTESSE? Seutac: Five AE pon ® docsity.com yee 2a0e 2053 2G1G Japan VS China cr Asset prices caCurrency Appreciation in 11,0 a house priab@ @| still decrease, redl estate crdgh real estate collapse in the schedule docsity.com  In 1989 Tokyo’s stockmarket had a price-earnings ratio of almost 70; today’s figure for Shanghai A shares is 28, well below its long-run average of 37. Asset market docsity.com  It is Japan’s experience after the 1980s that most influences the thinking of policymakers in Beijing. One reason why policymakers in Beijing have resisted a big rise in the yuan is that they fear it could send their economy, like Japan’s, into a deflationary slump. Currency apreciation docsity.com Exchange rate. cR Janpanese Yen ce Chinese RMB 10.00 (-) docsity.com Japan before bubble burst China status quo Economy Trade surplus Trade surplus Yen Appreciation RMB Appreciation GDP (4% - 9%) GDP (7%- 10%） Stock and property markets increased dramatically Stock and property markets increased dramatically Saving high Saving high Policy • Loose monetary policy • Expand domestic demand • Moderate tightening monetary policy • Moderately expansionary monetary policy • Expand domestic demand • Tightening monetary policy Completely open financial markets Not completely open financial markets Attitude of people Too optimism Optimism and Rationality Before bubble burst of Japan VS the status quo of China docsity.com The revelation from Japanese bubble economy Neo – Classical Model Y= f (K,L,T) Endogenous Growth Model Y = A Ka Hb L1-a-b docsity.com Value the real economy Use-Value is material content of wealth regardless of its social form.（不论财富的社会形 式如何，使用价值总是构成财富的物质内容） -----Marx's 《Das Capital》 docsity.com Attach importance to education and technology Human resource Primary Productive Force docsity.com