japan the country known for bullet trains electronic gadgets anime and manga vending machines frequent earthquakes charming geishas and the gigantic mount fuji the country faced severe destruction from allies in world war ii but went on to become one of the biggest economies in the world the same allies that destroyed japan gave them free access to their markets to help them rebuild the country japan saw an average annual growth rate of 9 between 1955 to 1973 which was an economic miracle especially for a war-torn country it saw another 4 average annual growth from 1973 to 1990 and this total of three decade economic prosperity made japan a financial powerhouse this era could be called a golden period in the history of japan the country was dominating multiple industries like automobiles semiconductors the entertainment industry and the consumer electronics industry from cameras to video games and from walkman to pocket radios companies in japan were prospering they were paying on a piecework basis and above all people's living standards were uplifted and their savings were on the rise japan reached around 75 percent of the usa's gdp at that time which was astonishing for a country half the population of the us and smaller than the state of california japan's growth rate was so remarkable that it led to optimistic predictions that sooner or later it will cross the economy of the united states to become the biggest economy in the world but it didn't happen the country instead faced an economic crisis that put the growth to a halt but what went wrong in the early 1980s the us dollar was appreciating against the japanese yen by a significant margin making the u.s exports expensive and imports cheaper that had a bad effect on the trade deficit of the us companies in the u.s who had difficulty selling their goods to the outside world complained about it what did it have to do with japan well the u.s did something to turn this in their favor a meeting was held at the plaza hotel in new york among the g5 countries that included the us japan uk germany and france the purpose of the meeting was to depreciate the u.s dollar against the japanese yen and west germany's mark we don't want to go into the details of why japan signed into this in the first place but that was a turning point the sudden rise in the value of yen had a dramatic but unforeseeable and unintentional effect it negatively impacted japan's export industry who had a big chunk of its total exports going to the u.s consumers companies in the us were happy but companies in japan well not so much how did the country tackle it there are two ways monetary policy and fiscal policy monetary policy is implemented by the central bank that involves changing the interest rates while fiscal policy is related to government spending and taxes the japanese central bank realized how at 50 percent devaluation of the dollar against the yen in just a few months could affect the competitiveness of japanese companies not only the export sector was affected by the devaluation of the dollar but the appreciation of yen reduced the cost of imports and resulted in lowered inflation headed towards deflation in the previous video we saw how big numbers of inflation are bad and central banks usually try to target a little amount of inflation usually around 2 percent that keeps the economy growing but deflation on the other hand is a nightmare and central banks do everything to not let that happen to tackle the situation they applied monetary policy by lowering interest rates which is a very reasonable and usual thing to do under such circumstances the idea was to increase the inflation rates to healthy numbers by boosting domestic demand and consumer spending what happens when the interest rates are lowered simple more people want to take loans for cars and homes businesses and so on because it's easier to return this exchange of money and consumer spending stimulates the economy japanese banks encouraged by the authorities began to lend money more easily to companies and individuals so borrowers could spend and invest that money in the economy to give it a boost the people of japan are labeled as savers and the country was already a big creditor they borrowed this money and spent it mostly in two sectors the capital market and the real estate as it was easier to borrow people used the bot properties as collateral to borrow more and more making the real estate and stock prices skyrocket big corporations including the ones who were impacted badly by the plaza accord agreement also got involved in taking huge loans and investing them in shares and the real estate market the more they got returns the more they borrowed and the more the prices went up and the cycle kept on repeating and a bubble began to develop although on the apparent it looked like the economy was booming at this point the economy looked like a charming geisha but it was becoming a giant bubble as big as a sumo wrestler the debt kept on increasing the prices skyrocketed and became out of reach for younger people and the company's competitiveness and export industry was on a constant decline the central bank realized that it was becoming a bubble and they tried to intervene by updating the monetary policy but things had already gone out of control as the tokyo stock exchange fell by 60 percent companies profits reduced because they were profiting more from the shares market in the real estate market instead of selling their products the economy stagnated for the next decade from 1991 to 2001 which is also referred to as the lost decade which turned out to be multiple decades because the stagnation persisted and the economy moved at a snail's pace for three decades its influence remained intact even to this day making it one of the most talked about topics in economics japan has the highest life expectancy in the world at 85. it has the world's biggest aging population with around 27 of the total population over 65 years old which accounts for over 34 million people the aging population lowers the demand factor in the economy because older people don't buy new cars and houses and consumer products compared to the younger ones also they take more retirement benefits compared to what the government receives in taxes from the working population the population is also shrinking which will be a major problem in the coming years japan has one of the lowest fertility and birth rates one way to sort this out is to let more immigrants in but the japanese are very homogeneous and conformist it's difficult for people to go against cultural norms combine this with the language barrier and the unwelcoming immigration policies and you have pretty much got a country that is unattractive for skilled immigrants and difficult to sail upwards disaster prone land is also unattractive as a real estate investment for foreigners there has been a naive debate that the low birth rates and labor shortage will be replaced by robots automation would probably fix a few gaps but opening up the doors for immigrants seems like a valid thing to do but in short the japanese would prefer to work with an emotionless machine than an actual human being from another country if it sounds too far-fetched then you should see people who have married anime characters depopulation impacts rural areas more than cities rural areas receive more government subsidies compared to their population hospitals are almost empty trains are seeing negligible people in some areas and it's hard to justify the construction of roads in some places and even if they embrace immigration they would be inclined to live in the cities also people in rural areas look for jobs in the big cities agriculture is dying down as the newer generation is uninterested in it and very few who work in the field are from the old age group buddhist temples are slowly ceasing to exist and so are the priests many local festivals and activities are already dying down due to the lack of people the rail industry will find it more and more difficult to get any profits in the countryside kiretsu is a collaborated relationship among some companies that give them a monopoly like exclusive control over the supply this makes the free market not so free this is backed by the government and it may appear that the government has created an environment beneficial to the businesses but it is detrimental to the economy in the long term it also pushes away the innovators and entrepreneurs who can't compete with the low-cost model like keretzu it also discourages and demoralizes the non-japanese companies as they won't invest seeing an obvious disadvantage against the keretzu long-term employment sounds good but it is a problem too companies hire college graduates who usually stay employed for a lifetime millions of workers are using this system for their benefits without updating their skill set and hang around until they are retired which is counterproductive in the era of technological development where skills get outdated quickly while companies in japan have reduced this approach to a significant low its effect still exists it seems like japan failed to level up its game when it comes to the industries it was leading in earlier its asian competitors like china taiwan and korea started to give it a tough time in price warranties and a more diverse range of products the yen carry trade is another factor contributing to the economic decline the low interest rates make the investors borrow money at a low cost yen and invest it in high paying currencies like the us dollar this makes the demand for the yen higher than what the central bank would want this shrinks the exports and halts the necessary minimum inflation required to keep the economy running japan has become the largest holder of u.s debt multiple times in the last decade the country does this to make the yen low relative to the dollar so it can improve its exports japan's energy consumption relies heavily on imports of crude oil and gas the country lacks domestic fossil fuel resources except for coal in a post-oil dependent era japan would have to look for other sources to meet its energy demands it started to shift towards nuclear energy earlier but fukushima nuclear plant disaster sent alarming signals to the general public who oppose nuclear energy earlier we talked about monetary policy that central banks implement next is fiscal policy which is just a sophisticated term for saying government spending and taxation a government can boost an economy by lowering tax rates and increase spending this means people and businesses would have more money which they will invest in businesses and employ more people this could be good for consumer spending and eventually economy could see growth but if you spend all this money on projects and benefits that don't give enough output then you are just going to go into debt and japan has gone into debt like no other the lower a country's debt to gdp ratio the better a debt to gdp ratio of over 75 percent for a longer period could have a poor impact on economic growth forget about the usa's 27 trillion debt sure it looks gigantic but it's almost equal to the country's total gdp that means they can produce equal to what they owe on the other hand japan's debt is over 250 of its total gdp which is the highest in the world which makes it the most indebted country on the planet with no end in sight making it the land of the rising debt japan will stay relevant for a long time borrowing more to stimulate the economy is not going to buy back freedom some are optimistic that japan has recovered and entered the post bubble era the stock market seems to be at good levels and employment is low and so on but the stagnation persists and there is no spectacular growth indicating its economy could trend towards growth unless they take some drastic measures which policy should be introduced to end the stagnation and gear the economy of japan towards long-term growth we will do our best to reply to every comment and question thank you for watching