Question

Why is that the Japanese economy is in a recession for a long period of time ? What going on in Japan.

Answer 1

The country of Japan has been facing a recession due to many occurring circumstances that have caused Japan's economy to slowly spiral down, such as many other countries are facing today.

Abenomics is the term used to describe the economic policies of Prime Minster Abe. They are built on unprecedented monetary easing, government spendingand business deregulation. The Prime Minister calls it his “three-arrow” strategy, borrowing the image from a Japanese folk tale that teaches that three sticks together are harder to break than one.

The Japanese economy is shrinking because Abe already succeeded in fixing Japan's unemployment problem. Japan is simply in an odd situation where low and falling levels of unemployment aren't good enough to ensure economic growth.

More Japanese people are in the labor force

And unlike in the United States, the labor force participation rate of working-age adults has soared to a record level. Abenomics, in other words, has accomplished exactly what macroeconomic stabilization policy is supposed to accomplish — while millions of able-bodied Americans and Europeans sit idly, Japan has achieved something close to full employment.

Japan is running out of people

In the context of a working-age population that's shrinking 1.5 percent a year, an economy that is "only" shrinking at 0.8 percent per year is actually doing okay. If you define a recession as two consecutive quarters of negative GDP growth, then a country like Japan, where the population is shrinking, is going to tumble into recession basically every time anything even slightly bad happens. For a while, monetary policy was effective at solving the problem of unemployment, which helped make up for the declining working-age population. But now that Japan has achieved full employment, only a surge of people or a sustained increase in the productivity growth rate can generate consistent positive GDP numbers.

Japan's massive debt-to-GDP ratio means Japan owes more than twice as much as it produces annually. The biggest owner of its debt is the Bank of Japan. That has allowed the country to keep spending without worrying about higher interest rates demanded by skittish lenders.

Japan briefly became the largest holder of U.S. debt in 2015 and again in 2017. Japan does this to keep the yen low relative to the dollar to improve its exports.

Earthquake, Tsunami and Fukushima Disaster Impact

On March 11, 2011, Japan suffered an 9.0 magnitude earthquake. It created a 100-foot tsunami that flooded the Fukushima nuclear power plant disaster. It occurred just as Japan's economy was emerging from the Great Recession. In 2010, GDP increased by a healthy 3 percent. That was the fastest growth in 20 years.

Japan lost much of its electricity generation when it shut down nearly all its nuclear power plants after the earthquake. The economy shrank 0.5 percent in 2011 as manufacturing slowed due to the crisis.