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The period colloquially termed Japan's "Lost Decades" primarily denotes the economic stagnation that commenced in the 1990s, not the 1980s.
Answer: False
The "Lost Decades" refer to a prolonged period of economic stagnation in Japan that began in the 1990s, triggered by the collapse of the asset price bubble, not the 1980s.
The term "Lost Decade" initially described the economic situation in Japan throughout the 2000s.
Answer: False
The term "Lost Decade" initially referred to the economic stagnation experienced in Japan during the 1990s. Subsequent decades of continued stagnation led to the terms "Lost 20 Years" and "Lost 30 Years."
Western governments have cited Japan's Lost Decades as a cautionary example for other developed nations facing slow growth after the 2007-2009 Great Recession.
Answer: True
Following the 2007-2009 Great Recession, Japan's experience during the Lost Decades has been frequently referenced by Western commentators and governments as a potential scenario for other developed economies grappling with prolonged periods of slow growth.
How have Western commentators used the term "Lost Decades" since the 2007-2009 Great Recession?
Answer: To warn other nations about potential prolonged stagnation.
Following the 2007-2009 Great Recession, Western commentators have frequently invoked Japan's "Lost Decades" as a cautionary precedent, warning other developed nations about the possibility of enduring periods of slow economic growth.
Which of the following best describes the evolution of the term "Lost Decade"?
Answer: It started with the 1990s and was extended to cover subsequent decades (20 years, 30 years) as stagnation continued.
The term "Lost Decade" initially denoted the 1990s. As economic stagnation persisted, the nomenclature evolved to "Lost 20 Years" (referring to the 2000s) and "Lost 30 Years" (referring to the 2010s), reflecting the ongoing nature of the economic challenges.
Japan's protracted period of economic stagnation was precipitated by the collapse of its asset price bubble, specifically the real estate and stock markets, which began in the early 1990s.
Answer: True
The bursting of Japan's asset price bubble in the early 1990s, encompassing both real estate and stock markets, is identified as the primary trigger for the subsequent prolonged economic stagnation.
During deflationary periods, Japanese companies were incentivized by holding cash to invest heavily in research and development.
Answer: False
Deflationary pressures incentivized Japanese companies to hoard cash rather than invest in research and development or other growth initiatives, and to reduce wages, thereby dampening economic activity.
An aging population and deflationary pressures contributed to a gradual decline in Japan's economic competitiveness.
Answer: True
The accelerating aging of the population, coupled with persistent deflationary trends, gradually eroded Japan's economic competitiveness and diminished its potential for growth.
The asset price bubble in Japan was primarily caused by the government strictly limiting bank lending through regulations.
Answer: False
The asset price bubble was inflated by aggressive lending practices, notably encouraged by the Bank of Japan's "window guidance" policy, which dictated loan growth quotas, rather than by strict lending limitations.
The Bank of Japan's decision to lower inter-bank lending rates in late 1989 helped to stabilize the asset bubble.
Answer: False
To curb speculation and control inflation, the Bank of Japan sharply raised inter-bank lending rates in late 1989, a move that precipitated the bursting of the asset bubble, rather than stabilizing it.
The 2011 Tōhoku earthquake and tsunami had minimal impact on Japan's already stagnant economy.
Answer: False
The 2011 Tōhoku earthquake and tsunami, along with the subsequent Fukushima nuclear disaster, exacerbated Japan's economic challenges, contributing to rising debt levels and compounding the effects of earlier recessions.
What event is identified as the primary trigger for Japan's prolonged economic stagnation known as the "Lost Decades"?
Answer: The collapse of Japan's asset price bubble in 1990.
The collapse of Japan's asset price bubble, which began in 1990, is widely recognized as the principal event that precipitated the prolonged economic stagnation referred to as the "Lost Decades."
What was the role of "window guidance" in the late 1980s?
Answer: It dictated loan growth quotas, encouraging aggressive lending.
"Window guidance" was a policy mechanism employed by the Bank of Japan to set loan growth quotas for commercial banks, thereby encouraging aggressive lending practices that contributed to the inflation of the asset price bubble.
What was the approximate magnitude of the decline in land and stock prices in Japan following the Bank of Japan's interest rate hike in 1990?
Answer: Around 60%
Following the Bank of Japan's significant increase in interest rates in late 1989, Japanese land and stock prices experienced a substantial decline, falling by approximately 60% from their peak values.
What impact did the COVID-19 pandemic have on Japan's economy in early 2020, according to analysts?
Answer: It was described as the "final blow" to a fragile, slowly recovering economy.
Analysts characterized the impact of the COVID-19 pandemic in early 2020 as the "final blow" to Japan's economy, which had only recently begun to show signs of slow recovery after years of stagnation, rendering it particularly vulnerable to external shocks.
Japan's average real GDP growth rate between 2000 and 2010 was significantly lower than that of other major industrialized nations.
Answer: True
During the period of 2000 to 2010, Japan's average real GDP growth rate was approximately 1% annually, a rate considerably lower than that observed in other major industrialized economies.
Japan's nominal GDP experienced a contraction, decreasing from approximately $5.33 trillion in 1995 to $4.21 trillion in 2023.
Answer: True
Japan's nominal GDP contracted from approximately $5.33 trillion in 1995 to $4.21 trillion in 2023, indicating a substantial decline in the overall size of its economy over this period.
Real wages in Japan fell by approximately 11% between 1995 and 2023.
Answer: True
Data indicates that real wages in Japan experienced a decline of approximately 11% from 1995 to 2023, signifying a reduction in the purchasing power of the average worker.
Japan's share of the world's nominal GDP significantly decreased from 17.8% in 1995 to 3.7% in 2024.
Answer: True
Japan's proportion of the global nominal GDP diminished substantially, falling from 17.8% in 1995 to 3.7% in 2024, reflecting its comparatively slower economic expansion relative to the global economy.
Japan's nominal GDP per capita has remained stagnant at approximately $40,000 since the 1990s, failing to surpass $60,000.
Answer: True
Japan's nominal GDP per capita has shown little growth since the 1990s, remaining around $40,000 and failing to reach levels seen in other major economies, indicating relative underperformance.
The Japanese yen's significant weakening in recent years contributed to Japan losing its position as the world's third-largest economy to Germany.
Answer: True
The substantial devaluation of the Japanese yen, reaching historic lows against the US dollar, played a role in Germany surpassing Japan as the world's third-largest economy due to the reduced nominal GDP value when converted to other currencies.
How did Japan's nominal GDP change between 1995 and 2023?
Answer: It decreased from $5.33 trillion to $4.21 trillion.
Japan's nominal GDP contracted from approximately $5.33 trillion in 1995 to $4.21 trillion in 2023, indicating a significant decline in the overall size of its economy over this period.
What was the approximate change in real wages in Japan from 1995 to 2023?
Answer: A decrease of approximately 11%.
Real wages in Japan experienced a decline of approximately 11% between 1995 and 2023, suggesting a reduction in the purchasing power of the average worker over this extended timeframe.
What was a major consequence of the Japanese yen becoming extremely weak in 2024?
Answer: Germany surpassed Japan as the world's third-largest economy.
The significant weakening of the Japanese yen in 2024 contributed to Japan losing its status as the world's third-largest economy to Germany, primarily due to the reduced nominal GDP value when converted into other currencies.
What was Japan's share of the world's nominal GDP in 1995?
Answer: 17.8%
In 1995, Japan constituted 17.8% of the world's nominal GDP, a figure that significantly decreased in subsequent decades.
In 2021, how did Japan's labor productivity compare to other G7 nations?
Answer: It was the lowest among the G7 nations.
In 2021, Japan's labor productivity was recorded as the lowest among the G7 nations and ranked 29th out of 38 OECD member countries, indicating a significant lag in productivity growth compared to other developed economies.
What was Japan's approximate national debt relative to GDP in 2013?
Answer: Around 240%
In 2013, Japan's national debt stood at approximately 240% of its GDP, representing the highest debt-to-GDP ratio among all nations at that time.
How did Japan's share of the world's nominal GDP change from 1995 to 2024?
Answer: It decreased significantly from 17.8% to 3.7%.
Japan's share of the global nominal GDP declined substantially from 17.8% in 1995 to 3.7% in 2024, reflecting its comparatively slower economic growth relative to the global economy.
What was Japan's average real GDP growth rate between 2000 and 2010?
Answer: Approximately 1% per year.
Between 2000 and 2010, Japan's average real GDP growth rate was approximately 1% per year, a rate significantly lower than that of other major industrialized nations during the same period.
In 2018, how many Japanese companies were among the world's top 50 by market capitalization?
Answer: 1
By 2018, only one Japanese company, Toyota, remained among the world's top 50 by market capitalization, a stark decline from 32 companies in 1989.
How did Japan's real output per capita compare to Australia's in 2011?
Answer: Japan's was 14% lower than Australia's.
By 2011, Japan's real output per capita had fallen to a level 14% below that of Australia, a significant reversal from 1991 when Japan's output per capita was 14% higher.
According to Paul Krugman, Japanese banks exercised extreme caution and scrutiny when issuing loans during the bubble period.
Answer: False
Paul Krugman observed that Japanese banks exhibited a lack of caution, lending more money with less scrutiny of borrower quality compared to banks in other nations during the bubble period.
Michael Schuman argued that Japan's economic recovery began only after zombie banks stopped injecting funds into unprofitable "zombie firms."
Answer: True
Michael Schuman posited that Japan's economic recovery was contingent upon the cessation of financial support from zombie banks to non-viable "zombie firms."
Richard Koo described a "balance sheet recession" as a situation where companies prioritize borrowing for expansion due to low interest rates.
Answer: False
Richard Koo defined a "balance sheet recession" as a scenario where firms, facing insolvency from asset price collapses, prioritize debt repayment from earnings over borrowing for expansion, even at low interest rates.
According to Richard Koo, massive fiscal stimulus was crucial in preventing a Japanese Great Depression by offsetting the decline in corporate investment.
Answer: True
Richard Koo argued that substantial fiscal stimulus measures, implemented through government borrowing and spending, were instrumental in preventing a severe economic contraction akin to the Great Depression by counterbalancing the drop in corporate investment.
Fumio Hayashi and Edward Prescott attributed Japan's stagnation primarily to excessive credit availability preventing firms from investing.
Answer: False
Hayashi and Prescott posited that Japan's stagnation stemmed primarily from low aggregate productivity growth and sluggish investment, driven by low desired capital expenditure, rather than credit constraints.
Hayashi and Prescott warned that boosting consumption without productivity growth could lead to low growth and high inflation.
Answer: True
Hayashi and Prescott cautioned that policies aimed at increasing consumption without corresponding productivity growth might result in an undesirable economic state characterized by low growth coupled with high inflation.
Jennifer Amyx suggested that Japanese policymakers were unable to enact necessary economic changes due to a lack of awareness of the problems.
Answer: False
Jennifer Amyx suggested that Japanese policymakers were aware of the required economic adjustments but hesitated to implement them due to concerns about potential short-term public and governmental repercussions.
According to Richard Koo, what action do firms prioritize during a "balance sheet recession"?
Answer: Paying down debt from earnings.
Richard Koo's concept of a "balance sheet recession" posits that firms prioritize using their earnings to reduce debt rather than undertaking new borrowing for expansion, even when interest rates are low.
Michael Schuman argued that Japan's economic recovery began when:
Answer: Zombie banks stopped supporting unprofitable "zombie firms."
Michael Schuman contended that Japan's economic recovery commenced only after financial institutions ceased providing support to non-viable "zombie firms."
Hayashi and Prescott attributed Japan's economic stagnation primarily to:
Answer: A decline in aggregate productivity growth.
Fumio Hayashi and Edward Prescott argued that the primary driver of Japan's economic stagnation was the deceleration of aggregate productivity growth, leading to reduced investment.
What concern did Hayashi and Prescott raise regarding policies aimed at boosting consumption without productivity growth?
Answer: They could result in low growth coupled with high inflation.
Hayashi and Prescott warned that policies designed to stimulate consumption without a concurrent increase in productivity growth could potentially shift the economy from a state of low growth and low inflation to one of low growth and high inflation.
Scott Sumner argued that Japan's prolonged economic pain resulted from:
Answer: Overly tight monetary policy.
Scott Sumner contended that the protracted economic difficulties experienced by Japan during the Lost Decades were primarily attributable to an excessively restrictive monetary policy.
The Bank of Japan's primary goal during the Lost Decades was to maintain a stable, low inflation rate close to zero.
Answer: False
The Bank of Japan's primary objective during the Lost Decades shifted towards combating deflation and achieving a positive inflation target, typically around 2%, rather than maintaining a rate close to zero.
Traditional monetary policy, such as setting low interest rates, became ineffective in stimulating Japan's economy during the Lost Decades due to deflation.
Answer: True
With deflation, even nominal interest rates at zero resulted in positive real interest rates, rendering traditional monetary policy ineffective as holding cash became more attractive than borrowing or investing.
The Bank of Japan implemented Quantitative and Qualitative Monetary Easing (QQE) and introduced a negative bank rate to combat deflation.
Answer: True
To counteract deflationary pressures, the Bank of Japan adopted unconventional monetary policies, including Quantitative and Qualitative Monetary Easing (QQE) starting in 2013 and a negative bank rate introduced in 2016.
Why did traditional monetary policy, like setting low interest rates, become ineffective in Japan during the Lost Decades?
Answer: Deflation resulted in positive real interest rates even at 0% nominal rates.
During periods of deflation, even nominal interest rates at zero percent yield positive real interest rates. This phenomenon, known as the zero lower bound, diminished the effectiveness of traditional monetary policy by making cash hoarding more attractive than borrowing or investing.
Which unconventional policy did the Bank of Japan implement in 2013 to combat deflation?
Answer: Implemented Quantitative and Qualitative Monetary Easing (QQE).
In 2013, the Bank of Japan initiated Quantitative and Qualitative Monetary Easing (QQE) as an unconventional measure aimed at combating deflation and stimulating economic activity.
The "zero lower bound" refers to the difficulty central banks face when:
Answer: Nominal interest rates are near zero.
The "zero lower bound" describes the constraint faced by central banks when nominal interest rates approach zero, limiting their ability to stimulate the economy further through conventional rate cuts, particularly in the presence of deflation.
"Zombie banks" were innovative financial institutions that successfully navigated the post-bubble economy by adapting quickly to new market conditions.
Answer: False
"Zombie banks" were financial institutions kept afloat by support mechanisms despite significant losses, hindering economic recovery by continuing to lend to unprofitable firms, rather than being innovative adaptors.
The collapse of the asset bubble resulted in a surge of bank credit growth, making financing easier for businesses.
Answer: False
The collapse of the asset bubble led to a significant increase in non-performing loans for Japanese banks, resulting in stagnated credit growth and making financing more difficult for businesses.
The "Nenko System" is a seniority-based wage and promotion structure in Japan.
Answer: True
The "Nenko System" refers to the traditional Japanese employment practice characterized by wages and promotions being primarily determined by an employee's length of service.
Shinzo Abe's "Abenomics" program aimed to increase inflation, boost productivity, and address demographic challenges.
Answer: True
The "Abenomics" reform initiative, introduced by Prime Minister Shinzo Abe, sought to revitalize Japan's economy by targeting chronic low inflation, enhancing worker productivity, and mitigating issues related to an aging population.
The "Nenko System" relates to Japanese management culture by representing:
Answer: A seniority-based wage and promotion structure.
The "Nenko System" is a fundamental aspect of Japanese management culture, characterized by a wage and promotion structure that is primarily based on an employee's seniority or length of service.
Which of these was explicitly mentioned as one of the "three arrows" of Abenomics?
Answer: Aggressive monetary easing.
Aggressive monetary easing was one of the core "three arrows" of Abenomics, alongside flexible fiscal policy and structural reforms, designed to revitalize Japan's economy.
What defines "zombie banks" in the context of Japan's crisis?
Answer: Banks kept afloat by support despite losses, hindering recovery.
"Zombie banks" are characterized as financial institutions sustained by external support (e.g., capital infusions, loans) despite incurring losses, thereby impeding broader economic recovery by continuing to finance non-viable enterprises.
What is "Amakudari"?
Answer: The practice of retired officials taking private sector jobs.
"Amakudari," literally "descent from heaven," refers to the practice where retired government officials assume positions in the private sector, often within industries they previously regulated.
What was the Bank of Japan's inflation target under Abenomics?
Answer: 2%
As part of the Abenomics strategy, the Bank of Japan established a target of 2% for consumer-price inflation, aiming to overcome the persistent deflationary environment.