South-Western College Publishing - Economics  

Recession in Japan
Subject International Economics, Recession
Topic International Finance
Key Words Recession, Gross Domestic Product, Aggregate Demand, Unemployment Rate, Aggregate Supply
News Story Japanís economy is officially in a recession Ė the first recession for Japan in 23 years. According to Japanese authorities, the economy sank at an annual rate of 5.3 percent in the first quarter of 1998. Gross domestic product declined by .7 percent for the fiscal year ending in March, the first annual decrease since 1975. While many economists have been worried about Japanís economic performance and the impact of the Japanese economy on Asia, todayís news was worse than expected and dampens expectations of a quick turnaround in the other Asian countries.

There are other signs of economic malaise in Japan. The Japanese unemployment rate is now at 4.1 percent. Corporate bankruptcies are up 37.5 percent. Suicides have increased by 18 percent in the last year. The yen, which has lost 40 percent of its value in the past three years, has been falling rapidly in recent weeks. A weaker yen makes Japanís exports more competitive, but could harm the economies of the other Asian countries that produce competing products.

Not all of the blame for Japanís problems can be attributed to external factors. The Japanese banking system is burdened by $600 billion in bad loans. Other sectors of the economy face excessive regulation. Consumers are reluctant to spend and the governmentís tax hike last year did not help. The government recently announced a stimulus package including tax cuts that may reverse the economic dip.

The impact of the Asian turmoil on the United States economy has been so far been mixed Ė consumers have benefited from lowered prices, but some corporations have suffered decreased profitability, and the fear is that continued economic problems in Asia could initiate panic selling in the US.
(Updated August 12, 1998)

Questions
  1. How is a recession officially defined?
  2. What typically happens to unemployment, gross domestic product, employment, and income in a recession?
  3. What are some measures that might be employed to revive the Japanese economy?
  4. Why might US officials be concerned about economic problems in Japan?
Source Sandra Sugawara, "Officials Confirm Japan Is In Recession," The Washington Post, June 13, 1998.

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