The Japanese economy had inflated into a bubble constituting of equities and real estate investment during 1980s. This was a booming period for the Japanese and was comprised of exceptional growth for their economy. However, in the 1990s the boom went to a bust, and the financial and real estate bubble collapsed. Physical structures had been built in hopes of attracting both domestic and foreign investment, plus stocks had been partially leveraged by the Bank of Japan (BOJ). The aftermath? Vacant buildings and a depreciating securities market. In the wake of the Asian financial crisis, the Bank of Japan began exercising expansionary monetary policy (printing more money, and disseminating this cash into the economy). However, as a result interest rates remained low and nominal (inflation accounted for) economic growth behaved similarly.

For more than two decades Japan has experienced stagnation (remaining in a state of very minimal growth) as well as deflation (a drop in market prices). When this occurs, there are few jobs to be had, very little production of goods, and business owners suffer, as consumption has decayed. One of the many side effects of stagnation, is that nominal wages fall, therefore there are fewer consumers who are willing to spend, even though prices have dropped due to deflation. As a result, businesses begin to fail, and fewer and fewer people will find jobs. After December 2012, Japan’s Prime Minister Shinzo Abe, installed an inflation target to diminish the nation’s deflation issue. He also is practicing a few other unique types of monetary and fiscal policy as well. This is a curious economic experiment, one that will prove insightful for Macroeconomic policy makers. These actions include, the purchasing of government debt by the BOJ (Japan’s current debt as a percentage of GDP is 200%). Other attempts also include, decreasing taxes in order to entice investment, as well as making the workplace more attractive to more women, who otherwise do not participate in the production economy. One will have to watch as these policies take effect, and perhaps the western world can gain some knowledge regarding other forms of treating spells of economic depression.