Les Grandes Depressions: le cas du Japon
Les Grandes Depressions: le cas du Japon
UNIVERSITE DE LAUSANNE SEMINAIRE DE POLITIQUE MACROECONOMIQUE Année Universitaire 2007-2008
Sa Zhao
1
1,Introduction---------------------------------------------------3 2The economy from 1955-2005------------------------------4 3Miracle economy period-------------------------------------4 4The government policy in 1990s----------------------------6 Why a big depression? Credit crunch?---------------------------------------------------7 Japan’s economy from a growth accounting point of view--------------------------------------------------------------8 Why TFP was low?How can TFP be increased?------------------------------------------------------11 The problems in Japan’s financial sector------------------------------------------------------------11 Principles based financial system Principle 1: We need to make the resource Efficienc--------------------------------------------------------12 Principle 2:We should Recognize Market and Regulatory Failure----------------------------------------------------------12 The conclusion------------------------------------------------13 References-----------------------------------------------------14
2
Introdution Japan’s economy is experiencing prolonged depression. This paper will first focus on the events in Japan’s economy history, especially post-war economic miracle (1944-1974), in order to decide the factors that determine the growth of Japan’s economy. Secondly, I will analyze each factor and take it into the nowadays depression to find the reasons of the prolonged depression. Thirdly, I will focus on the modern government policy that will influence the growth of Japan’s economy to make the anticipation of the future of Japan’s Economy. I will use the growth accounting model to find the factors which influence the Japanese economy. And how much does each factor influence Japan’s Economy. How did the finance crisis (1990 the end of the bubble economy) influenced Japan’s economy? I will find the reason that caused the decrease of Japan’s productivity. I will research the situation of capital market. I will especially focus on the problems existed in the financial sector. I will find the problems that exist in the Japan’s economy.
3
The economy from 1955-2005 Except the year 1974, 1998, 1999,the growth rates are positive. But the growth rate is smaller and smaller. From the year 1955 to 1973(the year of oil shock), the average growth rate was 9.2%.From 1974 the first minus growth rate came into Japan’s economy. From 1974 to 1988, the average growth rate was 3.7%.The year 1990,Japan’s asset price bubble burst, Japan’s economy goes into a prolonged depression, which lasted around 10 years. We call it the lost decade.
Miracle economy period Japanese post-war economic miracle is the name given to the historical phenomenon of Japan's record period of economic growth following World War II, spurred partly by United States investment but mainly by Japanese government economic interventionism in particular through their Ministry of International Trade and Industry. The distinguishing characteristics of the Japanese economy
4
during the 'economic miracle' years included: the cooperation of manufacturers, suppliers, distributors, and banks in closely knit groups called keiretsu; the powerful enterprise unions and shuntō; cozy relations with government bureaucrats, and the guarantee of lifetime employment (shūshin koyō) in big corporations and highly unionized blue-collar factories.
The asset price bubble (1986-1990) The Japan’s bubble economy begins from the plaza agreement (September, 22,1985 New York).In the conference, Japan make agreement about the exchange rate between Japanese Yen and American dollar. At the beginning of 1985,250 yen can change 1 dollar, but at the end of 1986 only 160yen already can change 1 American dollar. Japanese Yen began to have a so high value that the investment of stock and land begin to be popular and hot. From the graph 2,we can see after American’s Black Monday(the year 1987),American’s Dou jones fell down a lot and continue to have a much lower price. Normally, the global stock market’s trends are more or less the same as American stock market’s trend. But even this black Monday did not give any influence to Japan’s Nikkei 225.Nikkei 225 only fell down one day, after continuing going up, hit its all-time high on December 29, 1989 when it reached an intra-day high of 38,957.44 before closing at 38,915.87. Graph 1 shows the chart of Nikkei225. Graph 2 shows the chart of Dou Jones
5
Graph 3 Graph 3 shows the land price from 1970 to 2000.The blue line is the land price of Tokyo. At that time ,even the government thought that the whole land of only Tokyo equals the value of the whole US. The rates for housing, stocks, and bonds rose so much that at one point the government issued 100-year bonds. Additionally, banks granted increasingly risky loans. That’s why after the bubble burst, so many banks failed. And government use even 10years(until the year 2000) to do with the bad debts.
The Gouvernment policy in 1990s Growth slowed markedly in the late 1990s, largely due to the Bank of Japan's failure to cut interest rates quickly enough to counter after-effects of overinvestment during the late 1980s. Because the Bank of Japan failed to cut rates quickly enough, Japan entered a liquidity trap. To keep its economy afloat, Japan ran massive budget deficits to finance large public works programs. By 1998, Japan's public works projects still could not stimulate demand enough to end the economy's stagnation. In desperation, the Japanese government undertook "structural reform" policies intended to wring speculative excesses from the stock and real estate markets. Unfortunately, these policies led Japan into deflation on numerous occasions between 1999 and 2004. In his 1998 paper, Japan's Trap, Princeton economics professor Paul Krugman argued that based on a number of models, Japan had a new option. Krugman's plan called for a rise in inflation expectations to, in effect, cut long-term interest rates and promote spending. Japan used another technique, somewhat based on Krugman's, called Quantitative easing. As opposed to flooding the money supply with newly printed money, the Bank of Japan expanded the money supply internally to raise expectations of inflation. Initially, the policy failed to induce any growth, but it
6
eventually began to effect inflationary expectations. By late 2005, the economy finally began what seems to be a sustained recovery. GDP growth for that year was 2.8%, with an annualized fourth quarter expansion of 5.5%, surpassing the growth rates of the US and European Union during the same period. Unlike previous recovery trends, domestic consumption has been the dominant factor of growth.
Why a big depression? Credit Crunch? After the 1990s, there is limit on the amount a firm can borrow. If bank loans and other means of investment finance are not perfect substituted, an exogenous decrease in loan limit constrains investment. In this hypothesis we suppose that the big depression accounts for the credit crunch. Because the non-financial corporations are hard to get investment to increase the productivity, after the bank loans decreased. But from graph 4, the investment of non-financial corporations was not influenced a lot by the limitation of bank loan. The found another way to get investment----------capital market. The Japanese National Accounts has a flow-of –funds account for the non financial corporate sector that allows us to examine sources of investment finance. Graph 4 source:HayashiPrescott 1998
Investment(excluding inventory investment)= net increase in bank loans +net sales of
7
+gross corporate saving(ie, retention plus accounting depreciation) +net increase in other liabilities(I,e, new issues in shares and corporate bonds plus net decrease in financial assets, capital market)
Source: Hayashi Prescott 1998 From table 3(sources of investment finance for Non financial corporations), we can see that even the bank loans decreased from 52.2% to -4.8%.The net increase in other liabilities increased from -24.5% to 11.0%.The investment of nonfinancial corporations did influenced by the limitation of bank loan. We can not think the low productivity of non-financial corporations accounts for the limitation of investment. Because the non-financial corporations already found many ways to get investment (net increase in other liabilities).Capital markets are used a lot for nowadays investment.
Japan’s Economy from the growth accounting point of view The big depression comes from the 1990 because of the financial sector of Japan. Easily, we can think that the big depression is because of the plaza agreement, the government policy after the 1990, and the problems existing in the financial sector of Japan’s Economy. Although the financial crisis in 1990 gave us a number of bad debts and also the credit crunch, which did not influence a lot of the Japan’s economy, the real problem is not in the financial sector, but the productivity. I will use the growth accounting to analyze the Japan’s economy more technically. Growth accoutting The Solow growth model presents a theoretical framework for understanding the
8
sources of economic growth, and the consequences for long-run growth of changes in the economic environment and in economic policy. But suppose that we wish to examine economic growth in a freer framework, without necessarily being bound to adopt in advance the conclusions of our economic theories. In order to conduct such a less theory-bound analysis, economists have built up an alternative framework called growth accounting to obtain a different perspective on the sources of economic growth. We start with a production function that tells us what output Yt will be at some particular time t as a function of the economy’s stock of capital Kt, its labor force Lt, and the economy’s total factor Productivity the production function is:
We can know how much contribution we get from K(Capital) to the growth of Y also how much contribution we get from L(labor force). About A( Total Factor Productivity TFP)，it is not easy to know because TFP addresses any effects in total output not caused by inputs or economies of scale. For example, a year with unusually good weather will tend to have higher output, because bad weather hinders agricultural output. A variable like weather does not directly relate to unit inputs, so weather is considered a total-factor productivity variable. We can know the contribution of TFP from the contribution of K(capital), L(labor force) and the GDP growth rate.
Source :>
9
Graph 5: The Japan’s Economy Growth rate for Growth accounting
source:the cabinet office japan
We compare the contribution of each factor between the miracle period(1960-1970) and the lost 10 years(1990-)TFP contribution and capital contribution are remarkable.How much TFP contributed the Japan’s economy growth in from 1960 to 1970 and how much TFP contributed to the lost decade 1990s?From Graph 6,we can know the answer. Graph 6 source Hayashi Precott 1998
From Graph 6,we can see from 1960 to 1973,TFP factor contributed 6.5%of the Growth rate 7.2%.But in Period 1991-2000,the TFP factor only contribute 0.3%of
10
low growth rate 0.5%.We compare each sector in period 1991-2000,TFP is too low, Capital intensity sector is 1.4% compare to 2.3%in 1960-1973,this number did not decrease a lot. Even though the workweek length sector gave the growth rate minus influence, we can not make the work week longer anymore. In Japan, every week we work 40 hours----the same level as the US. From the figures, we can know for increasing the growth rate of Japan’s economy,we need increase TFP, which is the only way that can increase growth rate.
Why TFP was low? How can TFP increased? The only explanation for the low productivity is that the inefficient producers produce a greater share of output, because the government policy subsidizes inefficient firms. How can the inefficient produces stop producing and how can the efficient producers buy the inefficient producers in the same industry or other industries? We have to make the strong corporations get the more investment more easily ,and find a way that make the inefficient company can not get investment anymore, fail and then bought by the strong company. The very efficient way that can make the situation come true is too use the capital market. From the part I talked about credit crunch, it is already shown that the companies now use capital market a lot to gain the investment. If the investors can make the right design based the accurate information of each company, which is speculated by the financial organization, the strong company can get more investment and the inefficient ones will fail to get investment and disappear from the Japan’s economy. Also demographics, energy, and globalization are the three big challenges for the Japan’s economic future. All require much more productive and flexible use of labor and capital. The financial system is an essential part of achieving higher productivity. It must allocate labor and capital to the most productive uses. Under the current regulatory structure, this is not happening. The mission of financial sector is whether it can raise the productivity or not. We should put this mission as the most important thing and make a redesign of Japan’s financial sector.
The problems in Japan’s Financial Sectors With financial markets subject to both market failure and regulatory failure, the only solution is open, trusting communication between markets and regulators. Japan is short on both trust and communication. There are success cases of communication between regulators and markets in recent Japanese financial sector history. Such cases include creation of the IRCJ, creation of the new Corporate Law, and the Advisory Council on Government Debt Management. In the financial sector two elements are lacking, trust and policy competition. There were too many accidents in Japan’s Financial Sector these years:
11
Derivatives sales problem at a major bank; non-payment by life insurers; pension payment irregularities; auditing irregularities; market disruption from illtimed sanctions; postal savings system irregularities; Horie/Murakami Fund problems; stock manipulation by a railroad company; Yubari Municipal problems; TSE trading system problems; consumer finance fiasco; insider trading at a branch of a securities company; insider trading by a member of the media; From these so many accidents we can see that we need a principles-based financial system.
Principles-based financial system Principle 1: We need to make the resource Efficiency Financial structure and regulation must enhance competition. Entry/exit barriers and vested interests must be destroyed. Information supplied to markets by firms, regulators, and intermediaries (both analysts and media) must be accurate and balanced, and must be available on an equal basis. Leaks from both private and public sectors must stop. Distinctions among players and products should be made only on the basis of sophistication and potential contagion, not on such distinctions as region/center, private/public, regulator/intermediary, foreign/domestic. Technology and organizations, both private and regulatory, should minimize costs. Artificial barriers and overlap should be eliminated.
Principle 2:We should Recognize Market and Regulatory Failure Regulatory failures must also be recognized. These include lack of transparency, lack of accountability, lack of expertise, narrow incentive structures, information manipulation, and short tenure of key officials. Market failures must be also recognized. Such failures arise from asymmetric information (insider information), public goods (accounting systems), economies of scale (IT applications), and externalities (e.g. contagion).The financial system is highly vulnerable to both kinds of failures. All participants must approach these issues with humility.
12
Conclusion The lost decade begins from the financial crisis. But the problem is not a breakdown of the financial system but the low productivity. Nevertheless, we need to use more and more efficient financial system ( capital market) to raise the productivity not because of the lack of investment. But we need the function of capital market to make the efficient corporations stronger and inefficient corporations not exist anymore. So we need a complete principle based system to administrate the financial system. The purpose that make the strongest companies access to capital market more easily is the most important thing.
13
References 1,Allinson, Gary. Japan’s Postwar History Ithaca: Cornell University Press, 1997. 2, 梶善登(The decrease of population and the Japan’s Economy) 3,Japan’s Monetary Policy Transition, 1955-2005 4, Mlsahike Tstutsutni November 1996 5,Causes of the Long Stagnation of Japan during the 1990’s Financial or Real taizo motonishi Nagasaki University hiroshi Yoshikawa University of Tokyo 1999 6.Hayashi, F. and E. Prescott (2002). "The 1990s in Japan: A Lost Decade." Review of Economic Dynamics, 5(1), 206-235.
7,
UNIVERSITE DE LAUSANNE SEMINAIRE DE POLITIQUE MACROECONOMIQUE Année Universitaire 2007-2008
Sa Zhao
1
1,Introduction---------------------------------------------------3 2The economy from 1955-2005------------------------------4 3Miracle economy period-------------------------------------4 4The government policy in 1990s----------------------------6 Why a big depression? Credit crunch?---------------------------------------------------7 Japan’s economy from a growth accounting point of view--------------------------------------------------------------8 Why TFP was low?How can TFP be increased?------------------------------------------------------11 The problems in Japan’s financial sector------------------------------------------------------------11 Principles based financial system Principle 1: We need to make the resource Efficienc--------------------------------------------------------12 Principle 2:We should Recognize Market and Regulatory Failure----------------------------------------------------------12 The conclusion------------------------------------------------13 References-----------------------------------------------------14
2
Introdution Japan’s economy is experiencing prolonged depression. This paper will first focus on the events in Japan’s economy history, especially post-war economic miracle (1944-1974), in order to decide the factors that determine the growth of Japan’s economy. Secondly, I will analyze each factor and take it into the nowadays depression to find the reasons of the prolonged depression. Thirdly, I will focus on the modern government policy that will influence the growth of Japan’s economy to make the anticipation of the future of Japan’s Economy. I will use the growth accounting model to find the factors which influence the Japanese economy. And how much does each factor influence Japan’s Economy. How did the finance crisis (1990 the end of the bubble economy) influenced Japan’s economy? I will find the reason that caused the decrease of Japan’s productivity. I will research the situation of capital market. I will especially focus on the problems existed in the financial sector. I will find the problems that exist in the Japan’s economy.
3
The economy from 1955-2005 Except the year 1974, 1998, 1999,the growth rates are positive. But the growth rate is smaller and smaller. From the year 1955 to 1973(the year of oil shock), the average growth rate was 9.2%.From 1974 the first minus growth rate came into Japan’s economy. From 1974 to 1988, the average growth rate was 3.7%.The year 1990,Japan’s asset price bubble burst, Japan’s economy goes into a prolonged depression, which lasted around 10 years. We call it the lost decade.
Miracle economy period Japanese post-war economic miracle is the name given to the historical phenomenon of Japan's record period of economic growth following World War II, spurred partly by United States investment but mainly by Japanese government economic interventionism in particular through their Ministry of International Trade and Industry. The distinguishing characteristics of the Japanese economy
4
during the 'economic miracle' years included: the cooperation of manufacturers, suppliers, distributors, and banks in closely knit groups called keiretsu; the powerful enterprise unions and shuntō; cozy relations with government bureaucrats, and the guarantee of lifetime employment (shūshin koyō) in big corporations and highly unionized blue-collar factories.
The asset price bubble (1986-1990) The Japan’s bubble economy begins from the plaza agreement (September, 22,1985 New York).In the conference, Japan make agreement about the exchange rate between Japanese Yen and American dollar. At the beginning of 1985,250 yen can change 1 dollar, but at the end of 1986 only 160yen already can change 1 American dollar. Japanese Yen began to have a so high value that the investment of stock and land begin to be popular and hot. From the graph 2,we can see after American’s Black Monday(the year 1987),American’s Dou jones fell down a lot and continue to have a much lower price. Normally, the global stock market’s trends are more or less the same as American stock market’s trend. But even this black Monday did not give any influence to Japan’s Nikkei 225.Nikkei 225 only fell down one day, after continuing going up, hit its all-time high on December 29, 1989 when it reached an intra-day high of 38,957.44 before closing at 38,915.87. Graph 1 shows the chart of Nikkei225. Graph 2 shows the chart of Dou Jones
5
Graph 3 Graph 3 shows the land price from 1970 to 2000.The blue line is the land price of Tokyo. At that time ,even the government thought that the whole land of only Tokyo equals the value of the whole US. The rates for housing, stocks, and bonds rose so much that at one point the government issued 100-year bonds. Additionally, banks granted increasingly risky loans. That’s why after the bubble burst, so many banks failed. And government use even 10years(until the year 2000) to do with the bad debts.
The Gouvernment policy in 1990s Growth slowed markedly in the late 1990s, largely due to the Bank of Japan's failure to cut interest rates quickly enough to counter after-effects of overinvestment during the late 1980s. Because the Bank of Japan failed to cut rates quickly enough, Japan entered a liquidity trap. To keep its economy afloat, Japan ran massive budget deficits to finance large public works programs. By 1998, Japan's public works projects still could not stimulate demand enough to end the economy's stagnation. In desperation, the Japanese government undertook "structural reform" policies intended to wring speculative excesses from the stock and real estate markets. Unfortunately, these policies led Japan into deflation on numerous occasions between 1999 and 2004. In his 1998 paper, Japan's Trap, Princeton economics professor Paul Krugman argued that based on a number of models, Japan had a new option. Krugman's plan called for a rise in inflation expectations to, in effect, cut long-term interest rates and promote spending. Japan used another technique, somewhat based on Krugman's, called Quantitative easing. As opposed to flooding the money supply with newly printed money, the Bank of Japan expanded the money supply internally to raise expectations of inflation. Initially, the policy failed to induce any growth, but it
6
eventually began to effect inflationary expectations. By late 2005, the economy finally began what seems to be a sustained recovery. GDP growth for that year was 2.8%, with an annualized fourth quarter expansion of 5.5%, surpassing the growth rates of the US and European Union during the same period. Unlike previous recovery trends, domestic consumption has been the dominant factor of growth.
Why a big depression? Credit Crunch? After the 1990s, there is limit on the amount a firm can borrow. If bank loans and other means of investment finance are not perfect substituted, an exogenous decrease in loan limit constrains investment. In this hypothesis we suppose that the big depression accounts for the credit crunch. Because the non-financial corporations are hard to get investment to increase the productivity, after the bank loans decreased. But from graph 4, the investment of non-financial corporations was not influenced a lot by the limitation of bank loan. The found another way to get investment----------capital market. The Japanese National Accounts has a flow-of –funds account for the non financial corporate sector that allows us to examine sources of investment finance. Graph 4 source:HayashiPrescott 1998
Investment(excluding inventory investment)= net increase in bank loans +net sales of
7
+gross corporate saving(ie, retention plus accounting depreciation) +net increase in other liabilities(I,e, new issues in shares and corporate bonds plus net decrease in financial assets, capital market)
Source: Hayashi Prescott 1998 From table 3(sources of investment finance for Non financial corporations), we can see that even the bank loans decreased from 52.2% to -4.8%.The net increase in other liabilities increased from -24.5% to 11.0%.The investment of nonfinancial corporations did influenced by the limitation of bank loan. We can not think the low productivity of non-financial corporations accounts for the limitation of investment. Because the non-financial corporations already found many ways to get investment (net increase in other liabilities).Capital markets are used a lot for nowadays investment.
Japan’s Economy from the growth accounting point of view The big depression comes from the 1990 because of the financial sector of Japan. Easily, we can think that the big depression is because of the plaza agreement, the government policy after the 1990, and the problems existing in the financial sector of Japan’s Economy. Although the financial crisis in 1990 gave us a number of bad debts and also the credit crunch, which did not influence a lot of the Japan’s economy, the real problem is not in the financial sector, but the productivity. I will use the growth accounting to analyze the Japan’s economy more technically. Growth accoutting The Solow growth model presents a theoretical framework for understanding the
8
sources of economic growth, and the consequences for long-run growth of changes in the economic environment and in economic policy. But suppose that we wish to examine economic growth in a freer framework, without necessarily being bound to adopt in advance the conclusions of our economic theories. In order to conduct such a less theory-bound analysis, economists have built up an alternative framework called growth accounting to obtain a different perspective on the sources of economic growth. We start with a production function that tells us what output Yt will be at some particular time t as a function of the economy’s stock of capital Kt, its labor force Lt, and the economy’s total factor Productivity the production function is:
We can know how much contribution we get from K(Capital) to the growth of Y also how much contribution we get from L(labor force). About A( Total Factor Productivity TFP)，it is not easy to know because TFP addresses any effects in total output not caused by inputs or economies of scale. For example, a year with unusually good weather will tend to have higher output, because bad weather hinders agricultural output. A variable like weather does not directly relate to unit inputs, so weather is considered a total-factor productivity variable. We can know the contribution of TFP from the contribution of K(capital), L(labor force) and the GDP growth rate.
Source :>
9
Graph 5: The Japan’s Economy Growth rate for Growth accounting
source:the cabinet office japan
We compare the contribution of each factor between the miracle period(1960-1970) and the lost 10 years(1990-)TFP contribution and capital contribution are remarkable.How much TFP contributed the Japan’s economy growth in from 1960 to 1970 and how much TFP contributed to the lost decade 1990s?From Graph 6,we can know the answer. Graph 6 source Hayashi Precott 1998
From Graph 6,we can see from 1960 to 1973,TFP factor contributed 6.5%of the Growth rate 7.2%.But in Period 1991-2000,the TFP factor only contribute 0.3%of
10
low growth rate 0.5%.We compare each sector in period 1991-2000,TFP is too low, Capital intensity sector is 1.4% compare to 2.3%in 1960-1973,this number did not decrease a lot. Even though the workweek length sector gave the growth rate minus influence, we can not make the work week longer anymore. In Japan, every week we work 40 hours----the same level as the US. From the figures, we can know for increasing the growth rate of Japan’s economy,we need increase TFP, which is the only way that can increase growth rate.
Why TFP was low? How can TFP increased? The only explanation for the low productivity is that the inefficient producers produce a greater share of output, because the government policy subsidizes inefficient firms. How can the inefficient produces stop producing and how can the efficient producers buy the inefficient producers in the same industry or other industries? We have to make the strong corporations get the more investment more easily ,and find a way that make the inefficient company can not get investment anymore, fail and then bought by the strong company. The very efficient way that can make the situation come true is too use the capital market. From the part I talked about credit crunch, it is already shown that the companies now use capital market a lot to gain the investment. If the investors can make the right design based the accurate information of each company, which is speculated by the financial organization, the strong company can get more investment and the inefficient ones will fail to get investment and disappear from the Japan’s economy. Also demographics, energy, and globalization are the three big challenges for the Japan’s economic future. All require much more productive and flexible use of labor and capital. The financial system is an essential part of achieving higher productivity. It must allocate labor and capital to the most productive uses. Under the current regulatory structure, this is not happening. The mission of financial sector is whether it can raise the productivity or not. We should put this mission as the most important thing and make a redesign of Japan’s financial sector.
The problems in Japan’s Financial Sectors With financial markets subject to both market failure and regulatory failure, the only solution is open, trusting communication between markets and regulators. Japan is short on both trust and communication. There are success cases of communication between regulators and markets in recent Japanese financial sector history. Such cases include creation of the IRCJ, creation of the new Corporate Law, and the Advisory Council on Government Debt Management. In the financial sector two elements are lacking, trust and policy competition. There were too many accidents in Japan’s Financial Sector these years:
11
Derivatives sales problem at a major bank; non-payment by life insurers; pension payment irregularities; auditing irregularities; market disruption from illtimed sanctions; postal savings system irregularities; Horie/Murakami Fund problems; stock manipulation by a railroad company; Yubari Municipal problems; TSE trading system problems; consumer finance fiasco; insider trading at a branch of a securities company; insider trading by a member of the media; From these so many accidents we can see that we need a principles-based financial system.
Principles-based financial system Principle 1: We need to make the resource Efficiency Financial structure and regulation must enhance competition. Entry/exit barriers and vested interests must be destroyed. Information supplied to markets by firms, regulators, and intermediaries (both analysts and media) must be accurate and balanced, and must be available on an equal basis. Leaks from both private and public sectors must stop. Distinctions among players and products should be made only on the basis of sophistication and potential contagion, not on such distinctions as region/center, private/public, regulator/intermediary, foreign/domestic. Technology and organizations, both private and regulatory, should minimize costs. Artificial barriers and overlap should be eliminated.
Principle 2:We should Recognize Market and Regulatory Failure Regulatory failures must also be recognized. These include lack of transparency, lack of accountability, lack of expertise, narrow incentive structures, information manipulation, and short tenure of key officials. Market failures must be also recognized. Such failures arise from asymmetric information (insider information), public goods (accounting systems), economies of scale (IT applications), and externalities (e.g. contagion).The financial system is highly vulnerable to both kinds of failures. All participants must approach these issues with humility.
12
Conclusion The lost decade begins from the financial crisis. But the problem is not a breakdown of the financial system but the low productivity. Nevertheless, we need to use more and more efficient financial system ( capital market) to raise the productivity not because of the lack of investment. But we need the function of capital market to make the efficient corporations stronger and inefficient corporations not exist anymore. So we need a complete principle based system to administrate the financial system. The purpose that make the strongest companies access to capital market more easily is the most important thing.
13
References 1,Allinson, Gary. Japan’s Postwar History Ithaca: Cornell University Press, 1997. 2, 梶善登(The decrease of population and the Japan’s Economy) 3,Japan’s Monetary Policy Transition, 1955-2005 4, Mlsahike Tstutsutni November 1996 5,Causes of the Long Stagnation of Japan during the 1990’s Financial or Real taizo motonishi Nagasaki University hiroshi Yoshikawa University of Tokyo 1999 6.Hayashi, F. and E. Prescott (2002). "The 1990s in Japan: A Lost Decade." Review of Economic Dynamics, 5(1), 206-235.
7,
