Evaluation of the Causes of Fall of the Economy of Japan

Abstract: The economic downturn that befell Japan in the 1990s, commonly known as the "lost decade," resulted from a confluence of factors. The Plaza Accord of 1985, aimed at depreciating the US Dollar against the Yen, inadvertently triggered a substantial Yen appreciation, coupled with expansionary monetary policies, leading to an unsustainable asset price bubble. The burst of this bubble in the 1990s marked the onset of a balance sheet recession, where private sector deleveraging and a contracting workforce hindered traditional monetary policies' effectiveness. Additionally, a slowdown in total factor productivity (TFP) growth, stemming from a lack of innovation and inefficiencies in resource allocation, contributed to the prolonged economic downturn. High savings rates coupled with demographic challenges and implementation of the Basel 1 Accord in 1992 exacerbated the situation by constraining economic activity. This paper delves deeper into the reasons for the advent of the "lost decade" in Japan.

Keywords: Japan, balance-sheet recession, total factor productivity, TFP, yen appreciation, lost decade, economic downturn of Japan, fall of Japan's economy Work Cited: Shreya Gupta "Evaluation of the Causes of Fall of the Economy of Japan", IARJSET International Advanced Research Journal in Science, Engineering and Technology, vol. 10, no. 11, pp. 137-142, 2023. Crossref https://doi.org/10.17148/IARJSET.2023.101122.