Something having no current or flow and often having an unpleasant smell defines the word stagnant. The Japanese economy has been stagnant for about two decades now. There are many reasons for this ‘unpleasant smell’. Firstly, the fiscal policy in Japan, the surplus in savings, its once economic bubble power and the policy management in Japan put an end to any flow that there once was. Secondly, the Global flow and structural impediments are a cause of the lack of current. The liberal Democratic Party and Vested Interest Groups and also the monetarist explanation come into play. Looking at these such topics closely give a better look and realization of Japans stagnant economy.
Firstly, in 1997, Japans fiscal policy was causing output in contract towards the government. Fiscal is the use of a government taxation to influence the economy. Throughout the preceding decade, tax cuts have done a lot more to stimulate demand than increasing in public spending, partially because public works were extensively considered as inefficient. This suggests that a decrease in public works complemented by an identical decrease in taxes would enhance GDP (Gross Domestic Product). A rise in taxes would reduce growth and hence tax revenues, thereby increasing the government's deficit even further. Households in Japan know that taxes will become, and are an issue in which they will rise, thus they tend to save more with reducing the things they buy which then neutralizes the fiscal stimulus. Japanese savers remain unwilling to move their money overseas in search of greater revenues. The government could proclaim that the rate of sales tax was to be changed instantaneously from 5% to zero for a limited period, after which it would increase progressively to 10% once the economy was growing again. That would give consumers a reason to purchase goods now. It would, in effect, offset deflation, by constructing an anticipation of escalating prices. Cutting public works could make up the immediate revenue loss, and the upcoming tax escalation would put Japan's finances on a sturdier path. It is neither too late nor too expensive for Japan to revitalize its economy by pursuing proper fiscal expansion, financed by the Bank of Japan buying government bonds.
A world-class manufacturing power was lead into a deep slump. Japan has traditionally possessed a remarkably high savings rate and a moderately low consumption rate. Throughout the previous two decades of recovery and high-speed growth, this ‘savings surplus’ provided greatly needed capital to private industry in the form of bank loans. This money was used to build and expand Japan’s industrial infrastructure power. However, during the 1990’s the ‘savings surplus’, once the essential fuel for high-speed development became a stern obstruction, leading to a severe collapse in demand and causing a heavy drag on Japan’s economic recovery.
The so-called powerhouse country that was known to be Japan, known to be...