Another explosion heard

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Then fell the bomb with the government tightening the financial noose in May 1989. This was primarily meant to arrest the ‘illogically’ rising asset price bubble. The Japanese yen was revalued and interest rates too were raised by the banks explaining which Mamoru Yamakazi, Economist, Barclays Capital had rightly warned, “Higher interest rates will delay a full recovery in the economy. And Japanese companies still have too many workers and factories.” Rightly so, by the end of 1990s, the Nikkei (Tokyo Stock Market) had washed its hands off $2.07 trillion (300 trillion yen) and land prices had fallen by over 60%-80% in just a couple of months!

The result of this was the Great Depression in Japan which hit the economy during 1991 and lasted for at least 3-4 years, something which Japan is still recovering from as Andrew Shippley, Senior Analyst, Shroder Securities recalls, “Japan was on the road to ruin. We had deflation building, a policy paralysis, companies not restructuring and the value of Japanese assets tumbling..,” After World War II bombings, this was the next biggest bomb on Japan; no wonder its GDP grew by just 1.43% y-o-y during the subsequent 52 financial quarters following Q1 1990!

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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