Video #9 - How Japan Copes with Recession

Monday, January 09, 2006

sources | lesson plan

BACKGROUND INFORMATION

Experts say that Japan has been suffering a more severe economic decline than any of the big industrial nations. Its economy is forecast to shrink by another 0.4% this year. In December, three major credit rating agencies downgraded Japanese government bonds, citing a public debt higher than any in the industrialized world - $5.4 trillion , equivalent to 130 percent of the gross domestic product. The government also recently announced that the economy shrank for the second straight quarter, officially putting the nation back into recession for the third time in a decade. Unemployment stands at a record high of 5.4 percent.

One reason for the shrinking economy is excess saving by the Japanese people. The post-war baby boom has created large numbers of pre-retirement workers in their fifties, who save obsessively for their pensions. According to Evan Davis, BBC economics editor: "Absorbing those savings has been a challenge for the world - first they led to an investment boom and bubble which burst in Japan in the late 1980's and then to a boom and bust in Asia in the late 1990's". Another factor slowing the economy is falling prices. This leads consumers to hold back on spending, as they wait for prices to go even lower. Additionally, because banks have too many bad loans, they have cut back on lending.

Evans Davis concludes that "...if bankrupt companies signal a recession, and bankrupt banks signal a depression, one might reasonably call Japan a depressed economy, even if it is very affluent and still quite vibrant in the urban centers where the young do still shop hard."

Experts have proposed a variety of measures to alleviate the Japanese recession. American economist Paul Krugman says the authorities should create some inflation by stating that prices will rise by 4%. He believes this measure would break the deflationary mindset and cause people to start spending again, thinking that future bargains will disappear. Another way to fight recession might be to rescue the banks. Evan Davis says this could be accomplished by nationalizing the banks, writing off the bad debts, and re-establishing solvency by injecting new capital before re-floating them. This is not likely to occur, since the banks are perceived to have caused their own problems. Deregulation of banking has also been proposed as a solution. This idea, however, seems incongruous with gaining public confidence and economic security.

Prime Minister Junichiro Koizumi's ambitious economic revival program calls for privatizing highway corporations and airports and dismantling an influential housing loan corporation. The aim is to energize the economy by transferring businesses to the private sector and re-allocate government funds more efficiently. In a major victory for that plan, the Japanese cabinet announced in December announced plans to abolish 19 state corporations and privatize 45 others. Tokyo spends more than $40 billion annually to support public corporations, a figure which the prime minister wants to reduce by $8 billion over the next fiscal year.

Koizumi's plan includes limiting the practice of "amakudari' - literally, "descent from heaven" - in which government bureaucrats retire into lucrative positions at public corporations. This practice has been one of the reasons for the intense bureaucratic opposition to streamlining public companies.

But Koizumi's popularity is sagging. In response to an Internet poll on February 21, 76% of those responding felt Prime Minister Junichiro Koizumi has turned into an anti-reformer. There now seems to be public doubt in his ability to institute the difficult economic reforms many see as vital to restoring the world's second-largest economy to growth.

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SOURCES:

Anonymous, "Japan PM is anti-reformer say 76 percent of poll respondents," Reuters, Yahoo News Asia, February 21, 2002 http://asia.news.yahoo.com/020221/reuters/asia-90590.html

Davis, Evans, "Japan's fading economy," BBC News, October 31, 2001 http://news.bbc.co.uk/hi/english/business/newsid_1629000/1629737.stm

Sakurai, Joji, "Japan to Overhaul Public Sector," Yahoo! News, December 18,2001 http://dailynews.yahoo.com/htx/ap/20011218/bs/japan_economy_2.html

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LESSON PLAN

GRADE LEVEL/SUBJECT:

10-12/Economics, International Relations, World History, International Baccalaureate Programs (IB), Current Events, Geography

PURPOSE:

To present activities to be used in a variety of classroom situations in order to enhance student understanding of the Japanese economy and its significance globally.

OBJECTIVES:

Students will be able to:

1. Define recession.
2. Research Japanese history for other periods of recession.
3. Compare and contrast this particular Japanese recession with the economic status of other industrialized nations.
4. Evaluate the interdependence of the Japanese economy to that of the U.S..
5. Recommend solutions to the Japanese recession.

MATERIALS:

1. Background information provided.
2. Resources on Japan available at your school's Media Center and the Public Library System in your area.
3. Background information available through Internet "search engines."

ACTIVITIES:

May be assigned as group activities or as individual tasks. They may also be designed as preparation for related presentations either by individuals or groups.

1. Research and report on the causes and the effects of past recessions in Japan and in the United States.
2. Use charts and graphs to study the existence of interdependence between the economies of the U.S. and Japan. Draw conclusions in writing or as a class presentation.
3. Use charts and graphs to illustrate the status of the Japanese economy as compared to other industrialized nations. Draw conclusions from your findings.
4. Use the information gathered in the above activities to recommend solutions to improve the Japanese economy.

EVALUATION:

Individual assignments should be graded by the teacher using established criteria.

Group activities, presentations and projects may be evaluated by teachers and students using the following criteria and scale:

Content Creativity Clarity

1 = Superior (A) 2 = Excellent (B) 3 = Good (C) 4 = Fair (D) 5 = Poor (F)

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