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Japan's history is undeniably interesting with its unique culture, samurais, daimyos,
meiji restauration and all of that.
But not that many know of the turbulent and vibrant economic periods that Japan has enjoyed
and suffered after the World War II
Incidents of toilet paper hoarding, land prices of more than six thousand dollars for just
a post-card size area, infinite money printing and more
Get your beverage of choice and sit back to enjoy this video of the economic history of Japan
Japan suffered huge losses from WW2
Nearly 3 million died and a quarter of the whole national wealth gone
Reduced to burning fields and ash, recovery was something that was hard to see
Japan being the losing side was occupied by the US established GHQ (General Headquarters),
led by Douglas MacArthur
Fearing the rise of communism US made its mission to democratize Japan by establishing
free markets and empower the middle class
The way this was done was by first dissolving the Zaibatsu which in other words were the
monopolies and oligopolies.
Some of these had names such as Mitsui, Mitsubishi, Sumitomo, Nomura and so on.
Sound familiar?
Yes, these behemoths were dissolved but they found a way to regroup years after, which
is the reason the biggest holding companies names you see in Japan today are mostly grandchildren
of these Zaibatsu.
They go a long way even before the war.
Other measures the GHQ took was a land reform where government purchased and sold land to
independent farmers, and Labor market reform which made Labor Unions stronger.
These were all measures that helped to create and empower the middle class that was to help
Japans economy recover and accomplish the feat we today call the “japanese economic miracle"
But things didn't start rosy.
To fund the war, Japan had issued an huge amount of over 200% of its GDP in war bonds, which
is actually close to the level of debt that Japan has again accumulated today
but that's a different story.
Anyway, these war bonds that Japan had issued during the war matured at the same time as
solders who had been paid in the “military currency” went in to exchange them for real
This caused a sudden peak in the currency circulation.
However, Japan's industries hadn't still recovered from the war, so there was a shortage of general
A lot of cash but no available goods lead to hyperinflation.
To deal with this inflation Japanese banks did something unprecedented.
They ordered a freeze on peoples deposits while announcing that they were going to transit
to a new currency “the new yen”.
Because the “old yen” deposits were frozen and people couldn't withdraw but only a
small sum of money, and after the transit period old yen would lose its value
what ended up happening was that the out of reach money people had in their accounts
would lose its value.
And just to take things even further a wealth tax was introduced where if you had over 100,000
yen on your account you were subject to a tax of 20-90
So basically this was the government defaulting on its debt on the expense of its people.
After a couple of years the deposit freeze was lifted and with it the inflation returned.
This time an US economist Joseph Dodge created an austerity-policy package called “Dodge plan”.
Basically a plan to tighten spending and balance budgets.
This forced the Japan's economy into deflationary recession.
However clearing the economy of bad debt and the re-structuring helped to create a foundation
for companies to grow.
The following Korean war, created demand for Japanese companies which helped boost the
economy, creating the first stepping stone for the Japanese economic miracle.
With the demand from the US-troops fighting in the Korean war, Japanese industries started
to recover and grow.
Employment in the manufacturing industry increased and with the help of the labor unions, so
did workers wages.
This lead to increased consumption leading to a virtuous cycle that stimulated Japanese
domestic demand.
This was the beginning for an era of outstanding growth.
Wash-machines, refrigerators and televisions became new household staples.
Going forward, Japans experienced a particularly big growth during the Tokyo Olympics
of 1964.
During these years the average real GDP growth was a whopping 9.1%.
The Olympic mania encouraged a series of public work projects such as the famous Shinkansen
bullet train and many new highways.
This mania also extended to the stocks and securities in which from 1957 to 1961
In only four years the amount in investment funds grew 10 times
Leading to a new catchphrase “Bye bye banks, Hello investment funds”.
However as often happens, these kind of highs usually wear off, which started to happen
after the Olympics.
This and a policy of monetary tightening made the economy slip into a brief slump.
For Yamaichi securities trading company this was the last nail to the coffin as it was
already on the brink of insolvency.
And this is where something extraordinary happened.
The BoJ announced that it would lend to Yamaichi as much as they needed without any collateral.
Basically the government was saying that this company was “Too Big To Fail”.
But this was only a fraction of what was to come after.
Despite this however, the economy churned on and the focus started to shift to a new problem.
Tokyo was getting too crowded and countryside too desolate.
To solve this issue the prime minister candidate Tanaka Kakuei made an election promise for
“Remodeling the Japanese Archipelago” with an intention to connect big cities with
the country side.
The areas that were candidates to remodeling were soon rushed with opportunistic investors
that started hoarding land, which then sent land prices soaring, also causing inflation.
Adding insult to injury, the first oil crisis stemming from the Yom Kippur war in the middle
east causes an increase of over 70% in the oil price, putting a halt to the remodeling
project and worsening the inflation.
The inflation got so bad it was 31.4% in 1974.
This would mean that if you had a nest egg of 100,000 thousand dollars
at the end of the year it would have the purchasing power of only 68,600 dollars.
This oil crisis would also spark the infamous “Toilet paper commotion”, which just shows
the power of group psychology.
It all started with the Minister of Economy Yasuhiro Nakasone advising people to “save paper”
which started a rumor that paper was going to run out.
Then shortly after a regular supermarket in Osaka that had nothing to do with this statement
had an advertisement banner that read “Toilet paper so cheap its gonna run out!”.
Advertising cheap toiletpaper was normal as many shops used it to lure customers who would
then buy other products as well.
And this is where the gear switched to next level.
Shortly there was a line of over 300 housewives and in just 2 hours this discount toiletpaper
actually sold out.
After this people started to complain that the store didn't have the “discount toilet
paper” anymore, and quickly turned to buying the regular price toiler paper which was also
soon sold out.
A local newspaper got a whiff of this commotion and soon the headlines read:
“Toiletpaper price doubles” which further led to more people rushing to hoard this newly re-valuated
While this craziness was going on the fundamentals behind toilet paper production hadn't actually
changed at all.
However because the toilet paper manufactures knew that they could use this commotion to
their benefit, they artificially reduced the market supply by withholding some toilepaper
in their warehouse as they would be able to sell it more expensive later on.
The government was worried this could get out of control so they convinced the toiletpaper
manufacturers to ship their excess stock to the markets.
Retail shops would build huge display mountains of toiletpaper to show that there were not
a shortage and soon after the commotion was gone.
The real problem however was the inflation.
To put an end to it the BoJ tightened monetary policy which in turn slowed the economy growth
putting and end to the Japanese economic miracle in the year 1975.
This was also the time that Japan started to issue bonds (debt) on a regular basis.
Creating the start for the biggest debt nation to come.
Despite the growing debt, Japan was still an economic powerhouse and a net exporter.
Soon however the country would be hit by another oil crisis in 79, this time caused by the
Iranian Revolution.
This time Japan would figure out how to make this crisis into an opportunity.
Because of the rising oil prices Japan first re-structured its production, reducing its
dependency on oil by shifting to nuclear energy and producing more fuel efficient cars.
This is also the period when Japan started to mass produce semi-conductors and computers
that would find its way to all the corners of the world.
This exporting had netted Japan a huge trade surplus, and its economy grew to the
size of the third biggest in the world – a title that formerly belonged to Germany.
But as we know – someones trade surplus is another ones deficit, and this another
one was the US.
Another reason to this deficit was the appreciation of the dollar from 1980-85 which made Japanese
exports cheap.
On the losing side of this trade however was US companies such as Caterpillar, IBM and
Motorola, who started a campaigning and lobbying the government to intervene.
In 1985 this bore fruit in the form of the Plaza Accord, where the US dollar was devalued.
More expensive Japanese yen would mean that Japanese exports would now be more expensive
for foreigners so the BoJ decided to compensate by increasing the domestic demand.
To increase domestic demand BoJ did what they know best – loosen the monetary policy by
cutting rates and doing more Quantitative Easing – basically printing money and throwing
it at the market.
And the markets loved this.
All this cheap money went straight into the stock market and the real-estate inflating
a huge bubble.
The Ginza district in Tokyo had peak land prices of 36,500,000 yen for square meter
which would be the equal for paying about 600,000 yen or about 6000$ for a land the
size of a post card.
However the domestic markets weren't enough to satisfy the hunger of this newfound capital,
and soon enough Japanese were gobbling up real-estate and other assets all over the
world, such as the Hollywood studios, famous golf courses and even the famous Rockefeller Center.
Many even speculated that Japan would take over the US as the biggest economy in the
Watching as its citizens and companies would buy properties and stocks through heavy leveraging,
the BoJ started to worry about the economy heating too much.
To cool things down the BoJ started to gradually tighten monetary policy by rising the rates,
which ironically pricked the bubble and threw a bucket of cold water over the speculators.
People who had gotten accustomed watching their assets double in value now had to face
the bitter truth that it was all a mirage.
After the bubble popped stocks would crash about 50% and land prices about 15-18%.
Companies, banks and individuals who had over-extended themselves found themselves underwater.
As the price dropped, everyone were scrambling to get out of the market and those who were
left holding the so called hot potato would be the in trouble.
All of a sudden banks and companies found themselves holding tons of bad debt, that
was threatening their solvency.
So what could they do?
If you guessed tamper their accounting books with various tricks, then you were correct.
The banks and companies would sweep these bad bets under the rug in order to not lose
trust, but word shortly got out and global trust towards Japanese banks and companies
took a big hit.
The accounting books were ordered to be revealed and it was imminent that a lot of companies
and some banks were to go out of business.
However as Yamaichi securities were bailed in the 60s so would many companies be bailed
But not Yamaichi securities, they went bankrupt in -97.
Seems that sometimes you just don't get a second chance.
But those companies that were deemed “too important to fail” were bailed by the government
making way for a new word that is “zombie company”
By bailing all of these companies that would have otherwise failed created a sort of distorted
market conditions were the companies were artificially left alive through cheap money.
Some argue that this was a substantial reason for the long stagnation period that we know
call “the lost decade” or “lost decades” as Japan still haven't really recovered
from this.
Going towards the new millennium Japan was yet stricken by the Asian financial crisis
of -97 and the dot.com bubble in 2000, but these incidents had only limited impact on
the already slumped Japan.
During this Heisei recession manufacturing started to escape from Japan to cheaper countries
like China.
Companies not just in manufacturing but other industries also started reducing costs by
laying off workers or replacing full-time workers with temporary workers, who didn't
get the same benefits and bonuses as regulars.
Banks also experienced a big change, but unlike workers who got downgraded banks got buffed
with something called Japanese financial big bang.
To put this in short, a whole lot of financial regulation was de-regulated making it easier
for banks to do whatever.
This also made it possible for the banks to re-group into these huge holding companies
once again, which they did.
But this time its not called zaibatsu but keiretsu, so Im sure it must be a completely
different thing (sarcasm).
Also the BoJ started pumping money into the system and slashed the interest rate to near
From here the economy started slowly growing again, but the public sentiment
was that the economy was still bad, and the wealth gap started to be pointed out.
The latest financial crisis of 2008 is probably still on many peoples mind.
Irresponsible lending of the sub-prime loans and the securitization and derivatives led
to a huge melt-down.
This spilled over from the US to many countries and Japan was no exception.
However the way Japan suffered from this was a little bit unconventional.
The thing is that Japanese financials weren't too exposed to the sub-prime loans leaving
them relatively unscathed.
But because in times of crisis Japanese yen is often seen as a safe haven asset, when
the financial crisis hit, people started ditching the dollar and buying yen which appreciated
yen from 110 yen per dollar in 2008 to 76 yen per dollar in 2011.
This is a good thing for all Japanese tourist who can now get more bang for their yen, but
for Japanese exports a different story.
Going into the 2010s didn't bring any good news to Japan.
In 2010 the European Debt crisis while not causing a panic still sent shock waves to Japan,
and the next year Japan was hit by the Tohoku earthquake, tsunami and the resulting Fukushima
nuclear disaster.
The loss of life was devastating and the estimated economic cost rose over 235 billion USD making
it the costliest disaster in history.
Since the early 90s Japans economy didn't seem to get a break.
So in 2012 Shinzo Abe who was appointed as a prime minister for the second time made
a proposal to fix Japan's economy.
This plan was to be known as Abenomics.
Abenomics has 3 main policies or arrows as they call it, which Im going to break down.
The first is “Bold monetary policy”.
To put this simply: the BoJ is going to buy enormous amounts of assets such as bonds and
stocks from financial institutions and then hope that the capital they provided will be
used for giving loans to individuals and companies which then accelerates the spending and stimulates
the economy.
I would agree that the way BoJ has been printing money through Quantitative Easing and slashing
interest rates to minus has certainly been bold, but whether or not this makes any sense
to the normal citizens, I will leave for you to judge.
The next arrow is called "Flexible fiscal policy" which in plain English is about increasing public
spending in areas like construction, welfare and so on in order to stimulate the economy.
The funding for these public works are supposed to be funded with two methods.
First by Value Added Tax increases, where the VAT was hiked from 5% to 8% in 2014 with
a plan to hike it again in 2015 to 10%.
Come 2015 however and due to weak consumption data the tax hike was postponed to 2017.
Come 2017 and a similar argument was made this time when Abe Prime Minister declaring that
there is a risk for a similar situation as the 2008 financial crisis. So 2019 october
it is then.
Currently at the making of this video there is roughly 7 months until this day.
Also in addition to the VAT
the second method that Japan funds these public works is by the BoJ buying bonds
which shouldn't be a surprise to anyone at this point.
The last arrow of this policy would be translated into something along the lines of “Growth
strategy” which is striving for: lowering regulations, including more women and foreigners
in the work force and increasing tourism and exports.
Abenomics has been a really controversial topic where some applaud it for “a way to
escape the deflation trap” or “ a good way to stimulate demand” where as others
criticize Abenomics for “distorting markets” and “creating a wealth gap”.
Lets take a quick look at some economic indicators to see what has happened during the Abenomics
years starting from 2012.
Looking at the Nikkei Stock market index we can see that stocks has soared about 150&100:22:20,160 --> 00:22:22,160 from the start of Abenomics.
Real-estate has also steadily increased at least in the big cities like Tokyo.
Looking at countryside real-estate however the contrast is vast.
What about the employment then?
According to this chart from CEIC-data the unemployment seems to have reached about 2.4&600:22:42,200 --> 00:22:45,640 which is ridiculously low compared to many other countries.
But we have to take into account that the percentage of temporary workers have been
increasing steadily since the bursting of the bubble and the financial crisis which
means you could have a part-time job at McDonalds for 2 days a week, but still be considered “employed”.
So now that we now that unemployment is low, lets take a look at wages.
Surely they have been rising right?
Normally when an economy gets closer to full employment the wages rise because companies
have to fight for the workers by giving incentives like higher pay.
But this didn't turn out to be the case.
Looking at several graphs anyone can notice that the pattern from 2012 has been a decrease
in wages.
While wages in general have been decreasing looking at the Gini co-efficient index where
1 is total un-equality and 0 a perfect equality of wealth distribution, we can see that the
trend has been towards a bigger wealth gap.
However when we look at the situation after re-distribution
This trend doesn't appear to be too strong.
One reason to this income gap seems to be the location, as wages in Tokyo has risen
a lot compared to other prefectures of Japan.
What about inflation then?
The 2% inflation that has been obsession for the BoJ all these years.
The BoJ accomplished this inflation target briefly in 2014 when the inflation rate
jumped to 4(800:24:19,720 --> 00:24:25,560 But the reason for this seems to be the increase in VAT-tax and cheap yen
which made many products more expensive to purchase
Lastly lets look at what has been happening with the debt levels of the country and individuals.
First for households the increase of debt has been small but gradual, but hold your breath
because here comes the national debt.
Ever since the bubble the debt has increased and today Japan has a national debt which is
over 250% of its GDP, which makes it the biggest debt nation in the world.
Also since the start of Abenomics BoJ has multiplied the amount of their balance sheet
by buying bonds and stocks which they largely hold to this day.
Looking at all this data, I think that at least what we can say about Abenomics is that
while succeeding in inflating stocks and real-estate by taking on a huge amount of debt it still
hasn't really made the life of ordinary person any better.
It is a common argument that there is no problem with this debt
Because almost all of it is owned by Japanese themselves
And the country can't go bankrupt, as it can always just print more money
This is essentially the logic behind Modern Monetary Theory
Whether or not this is true is not for debate in this video
Hopefully you found this topic interesting and learned something from it, the sources
for the charts and data I used are in the description so feel free to check them out
Anyway please like, subscribe and comment as this kind of interaction helps me make
more videos like these in the future.
Thanks for watching!


日本経済の歴史 (Japan - The History of Economics (Documentary))

99 タグ追加 保存
Mayu Okuuchi 2020 年 1 月 21 日 に公開
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