Since 1990, with the bursting of the bubble economy, the Japanese economy has fallen into the following situation"The "balance sheet recession" characterized by low growth, low employment, low inflation, low wealth, and low leverage lasted for 30 years, and is also known as Japan's "lost thirty years".
According to the author's investigation, the loss of the Japanese economy is not inevitable, and there are very profound policy response mistakes, especially the incoordination, inconsistency, and discontinuity of policy response in the "lost first decade", which deserves in-depth reflection and has important implications for China's current economic development.
First published on FT Chinese (February 5, 2024).**Please indicate the source
Since 1990, with the bursting of the bubble economy, the Japanese economy has fallen into a "balance sheet recession" characterized by "low growth, low employment, low inflation, low wealth, and low leverage", which lasted for 30 years, also known as Japan's "lost thirty years". After participating in several seminars in Hong Kong and Japan on the return to growth of the Japanese economy, as well as studying the policy experience of the United States in dealing with the crisis, the author deeply feels that it is not inevitable that the Japanese economy will experience a "lost 30 years", and that there are very profound policy response mistakes, especially the inconsistent, inconsistent and discontinuous policy responses in the "lost first decade", which deserve in-depth reflection. Standing at the moment of China's economic development, Japan's past policy mistakes are also important implications for the present.
Reflection 1: Actively puncture the bubble, but seriously underestimatedThe impact caused by the bursting of the foam
In order to control the continuous expansion of the real estate bubble, the Japanese policymakers took the initiative to raise interest rates five times in a row from May 1989, and the discount rate increased from 325% to 6 in August 19900%。At the same time, in 1990, the "total control policy of real estate financing" was introduced", requiring financial institutions to increase the growth rate of real estate loans not to exceed the growth rate of total loan balances, resulting in the growth rate of real estate loan balances in Japan from 15 in March 19903% was rapidly reduced to 0 in March 19913%。In addition, since 1991, Japan has also begun to implement land tax reform and tighten land tax.
Under the continuous pressure of interest rate hikes, credit, taxation and other policies, Japan's ** and housing prices have been sharply **. Both the Nikkei 225 and the Tokyo** Stock Exchange Index peaked at the end of 1989, and then fell rapidly, reaching 33% in 1990**, and in March 1992, the Nikkei Stock Average fell below 20,000 points, only half of its peak in 1989. Land in Japan** peaked in the third quarter of 1990 and fell by about 8% in 1991.
However, for the impact of the bursting of the asset bubble, there has been an obvious misjudgment by the Japanese decision-makers The "Economic ***" issued by the Japanese Planning Agency in the year believes that the negative impact of the collapse of the bubble economy on personal consumption and corporate investment is very limited, and it will disappear after 1993, and the non-performing loans of financial institutions are not a serious problem. It was not until 1993 that the "Economic Bubble Economy" realized that "the bursting of the bubble economy had a huge impact on the real economy", but at this time three years had passed since the bubble burst.
Behind this huge impact is a major shock to the balance sheets of the corporate and residential sectors. Since the bursting of Japan's asset bubble, real estate, which is an important asset allocation for Japanese companies and households, has fallen by more than 70% since its peak in the 90s, and its assets have fallen by more than 80%, causing a loss of more than 1,500 trillion yen in wealth for Japanese companies and households.
Reflection 2: The lack of policy coordination has led to a "liquidity trap" for monetary policy
After the bubble burst, Japan's policy response was not uniform, and the response measures were not targeted, resulting in the market not being able to see the future prospects. In the eight years from 1991 to 1998, Japan changed seven prime ministers, and with the frequent changes in the political situation, Japan's economic development thinking was also repeatedly adjusted, and the impact of the bubble burst was obviously not paid enough attention.
Although the Bank of Japan began to cut interest rates to deal with the economic downturn after the bubble burst, it still fell into the "liquidity trap" after all. The Bank of Japan lowered the benchmark lending rate nine times, from 6% in 1991 to 0 percent in 19965%, but it did not reverse the continuous decline in loan and monetary** growth, Japan's M2 growth rate fell from 12% in 1990 to about 0 in 1993, and at the same time, inflation continued to decline, and eventually fell into deflation for a long time.
On the one hand, banks have suffered from the rise in non-performing loans and the decline in capital adequacy ratios, and there has been an obvious "reluctance to lend", on the other hand, the balance sheet of enterprises has shrunk, the income has fallen sharply, and the lifelong employment system cannot be maintained.
In addition, the hedging of the "land price tax" and the loose monetary policy have not changed the trend of real estate. In 1989, Japan took the tax reform as the main means of regulating and controlling land, but it was not until 1991, when the real estate system began to collapse, that strict land price tax tightening measures were introduced, including the introduction of land value tax, strengthening the special land tenure tax, agricultural land tax and transfer income tax, and raising the inheritance tax.
These austerity measures have exacerbated the willingness of property owners to sell, causing the property market to continue**. It wasn't until seven years later, in 1998, that Japan's land policy began to take a full turn, when the Tokyo Housing ** Index had fallen by nearly 50% from its 1991 high. It wasn't until 2004 that Japan's real estate** bottomed out, when the index was nearly 60%.
Reflection 3: The fiscal policy is "heavy investment and light consumption", and household consumption continues to be sluggish
After the bubble burst, the "liquidity trap" was not the only obstacle to Japan's economic recovery. Japan's fiscal policy of "heavy investment over consumption" has led to a "poor cycle of supply and demand" in economic recovery.
In the beginning, Japan did not implement an active fiscal policy. After the bubble burst, Japan's fiscal expenditure did not increase significantly at the beginning of the annual general budget expenditure at 70About 5 trillion yen, which is about the same as the scale of spending in 1990, began to increase in 1993, but the expenditure fell again in 1993.
Later expansionary fiscal policies focused on increasing public investment. Since 1992, Japan** has continuously increased the budget for public utilities, increasing by 8 in 19926 trillion yen, invested 116 trillion yen, 72 trillion yen, and in 1995 launched a total of up to 18The 8 trillion yen emergency and comprehensive economic measures will continue to focus on increasing public utility spending and expanding public utility investment.
However, the decline in employment and consumption has not been paid enough attention. Only in 1994 was a one-time "special tax reduction" for personal income tax. The increase in public investment has not contributed to the growth of household employment and consumption. In 1990, Japan's effective job seeker ratio was 14 times, i.e. 1. for each job seeker in the labour market4 job openings, which have since declined significantly and have not doubled until 2005. As a result, the growth rate of private consumption in Japan increased from 4 in 19908% fell rapidly, did not exceed 3% in the next decade, and fell to -0 in 19986%。
The tightening of the consumption tax policy has cut off the signs of Japan's economic recovery. Japan's expansionary fiscal policy does not pay enough attention to household consumption, and its stimulus effect on the economy is not good, but it has led to the continuous widening of the fiscal revenue and expenditure gap. To this end, in 1997, Japan promulgated the "Fiscal Structure Reform Law", requiring that by 2003, the fiscal deficit as a proportion of GDP should be reduced to less than 3%, the issuance of deficit public bonds should be stopped, the consumption tax rate should be increased from 3% to 5%, and some tax reduction measures should be terminated, and the proportion of personal burden in medical expenses should be increased.
Since then, the increase in the consumption tax rate and the withdrawal of tax cuts have increased the burden on the people, causing personal consumption, which accounts for about 60% of Japan's GNP (gross domestic product), to further weaken and drag down the economic recovery. Coupled with the superimposed impact of the Southeast Asian financial crisis, Japan's economy improved slightly in 1996 (growth of 4.4%) fell into recession again, with growth falling to around 0.
Reflection 4: Financial risks are not effectively resolved, and non-performing assets are getting bigger and bigger
After the bubble burst, Japan** did not pay enough attention to financial risks. Japan implements the main banking system, and the policy authorities ignore the vicious circle between the operating difficulties of asset enterprises and the bank's non-performing loans, and adopt a soft landing solution for the disposal of non-performing assets, hoping that economic recovery and asset management will lead to the decline of non-performing assets.
However, as assets** continue to decline, balance sheet recession appears, and corporate bankruptcies continue to increase. In 1991, the number of enterprise bankruptcies increased significantly to 13,578, an increase of about 48 percent over 1990. In the decade that followed, the number of bankruptcies of Japanese companies remained high due to the economic downturn and financial market turmoil.
Correspondingly, Japan's non-performing loans are also getting bigger and bigger. At the end of 1992, the total amount of non-performing loans in the Japanese banking sector was about 40 trillion yen, and at the end of September 1998, it rose to 875 trillion yen. If we consider the non-performing assets that are hidden by financial institutions, the actual scale is even larger.
If this drags on, the financial system has serious hidden dangers and weak ability to resist risks, and under the impact of the Southeast Asian financial crisis, Japan's large financial institutions have also failed one after another. At the end of 1997, the Hokkaido Takushoku Bank and the Yama-** went bankrupt, and in the second half of 1998, the "Japan Long-Term Credit Bank" and the "Japan Bond Credit Bank" were nationalized due to poor management. At this time, Japan made up its mind to inject funds into financial institutions to solve the risk problem.
However, the delay in resolving the risk has led to a huge amount of bailout money invested in Japanese policy. In March 1998, Japan** injected 1,015.6 billion yen of financial funds into 21 banks for the first time; In October 1998, a total of 60 trillion yen was launched for the reconstruction of the financial plan, of which 25 trillion yen was used to inject capital into banks. If risk disposal is resolutely promoted in the early stage of the bubble bursting, such a huge amount of capital investment should not be needed.
To make matters worse, before the bailout policy could take effect, Japan** launched a reform of the financial system. In October 1998, Japan** passed two important reform bills, the Financial Rehabilitation Act and the Early Sound Act. In particular, the "Early Sound Law" requires the Financial Services Agency of Japan to propose measures to improve or suspend business operations of financial institutions whose operations have deteriorated based on its own capital, so as to urge financial institutions to resume normal operations as soon as possible.
However, in order to improve their capital adequacy ratios, Japanese financial institutions have had to shrink their balance sheets: on the one hand, they can do their best to write off non-performing assets, and on the other hand, they will strictly restrict loan disbursements. As a result, the problem of "reluctance to lend" has become more serious, and many small and medium-sized enterprises have gone bankrupt and closed down because they cannot obtain financing, and a vicious circle of "bad debts rising, shrinking loans, enterprise closures, and bad debts rising" has emerged. Finally, in April 2002, Japan** had to launch an emergency economic countermeasure aimed at the final disposal of non-performing loans, and Japanese financial institutions gradually emerged from the quagmire of non-performing assets.
To sum up, after the bursting of the housing bubble in Japan in 1990, the assets were significantly reduced, resulting in a balance sheet recession, forming a vicious circle of continuous assets, high risks of financial institutions, contraction of corporate financing and household consumption, long-term economic deflation and low growth, and finally dragging the economy into the "lost thirty years". The impact of the bursting of asset bubbles on the balance sheets of market entities and economic and financial development is usually systemic, and the impact of the situation of policy departments should not be underestimated. At the same time, the policy response needs to be systematic and coherent, and the policy strength must be sufficient, otherwise it will be difficult to clear the risks, market expectations to be boosted, and the economy to recover quickly.
In 2023, China achieved 52% growth, but the ** economic work conference at the end of the year also clearly pointed out that the sustained economic recovery in 2024 will still face difficulties such as insufficient effective demand, overcapacity in some industries, weak social expectations, and many hidden risks. Japan's policy response to the bursting of the bubble economy in the 90s provides a good inspiration for China's economy to avoid falling into a balance sheet recession from another angle.
Review of previous reports:
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Will the yen continue to appreciate in 2024?
The global economy in 2023: the year of accelerating divergence.
How does the U.S. dollar affect the world's rise and fall?
Why does the yen continue to depreciate as the Japanese economy recovers?