CandleFocus Glossary Editor
The Lost Decade is a term that is used to describe a nearly ten year period of economic stagnation in Japan’s economy during the 1990s. The term came about to refer specifically to the declining economic performance that the country experienced after being an economic powerhouse for the majority of the late twentieth century. Japan's Lost Decades have become common reference for other economic downturns such as the economic conditions seen in the US economy during the first decade of the twenty-first century.
The economic slump began in Japan in 1991 when the real estate bubble burst, which caused a drastic increase in the country’s real estate prices and an over-investment in the nation’s housing industry. This was followed by a rapid decline of the Japanese yen, which caused the country’s exports to become less competitive. The Japanese government responded by taking a number of unfortunate measures to counter the downturn, such as implementing tight monetary policies and raising taxes; both of which served to choke any potential recovery.
The combined effects of bad government policies due to the aftermath of the real estate bubble combined with the challenge of adjusting to a more global economy did more than just cause economic stagnation; it caused a long period of deflation and depressed consumer demand. Additionally, Japan’s aging population magnified the impact of these issues and prevented an adequate response in the form of government reforms that would have encouraged economic growth.
The repercussions of Japan’s Lost Decades included a severe slowdown in the growth of the country’s GDP, shrinking demand for consumer goods, skyrocketing public debt, persistently low inflation rates and a widening gap between the country’s rich and poor. As a result of these conditions, Japan’s economy is still in need of reform more than two decades after the initial onset of the recession.
Although the experience of the Lost Decade may have been unique to Japan, there are lessons to be derived from this period of economic stagnation that may inform other governments as they aim to uphold economic growth and prosperous future. Governments must take proactive measures that involve a combination of tax cuts and dynamic public policies in order to counteract economic downturns. Additionally, it is essential for governments to involve citizens in their decision-making by consulting them on important economic reform measures. With this approach, Japan and other countries can avoid any future Lost Decades.
The economic slump began in Japan in 1991 when the real estate bubble burst, which caused a drastic increase in the country’s real estate prices and an over-investment in the nation’s housing industry. This was followed by a rapid decline of the Japanese yen, which caused the country’s exports to become less competitive. The Japanese government responded by taking a number of unfortunate measures to counter the downturn, such as implementing tight monetary policies and raising taxes; both of which served to choke any potential recovery.
The combined effects of bad government policies due to the aftermath of the real estate bubble combined with the challenge of adjusting to a more global economy did more than just cause economic stagnation; it caused a long period of deflation and depressed consumer demand. Additionally, Japan’s aging population magnified the impact of these issues and prevented an adequate response in the form of government reforms that would have encouraged economic growth.
The repercussions of Japan’s Lost Decades included a severe slowdown in the growth of the country’s GDP, shrinking demand for consumer goods, skyrocketing public debt, persistently low inflation rates and a widening gap between the country’s rich and poor. As a result of these conditions, Japan’s economy is still in need of reform more than two decades after the initial onset of the recession.
Although the experience of the Lost Decade may have been unique to Japan, there are lessons to be derived from this period of economic stagnation that may inform other governments as they aim to uphold economic growth and prosperous future. Governments must take proactive measures that involve a combination of tax cuts and dynamic public policies in order to counteract economic downturns. Additionally, it is essential for governments to involve citizens in their decision-making by consulting them on important economic reform measures. With this approach, Japan and other countries can avoid any future Lost Decades.