What were the causes of the current recession in Japan?
Shrinking Global Demand The shrinking of the Japanese econmy is a classic case of “globalisation in reverse”. For many years the USA, high on an economic boom, was the major customer for cheaply manufactured Chinese goods, as well as Japanese cars, and electronics. As the US stopped spending, Chinese factories closed and the Japanese economy, so heavily reliant on the US market began to shrink. A High Currency Economists call 1990’s Japan’s “Lost Decade”. GDP was low and in an attempt to combat recession, the government decided to drastically lower the interest rates on borrowing its currency, the yen. It then bought US treasuries, keeping the yen low and exports competitive. This fueled much speculation in the yen as an investment opportunity. By borrowing the yen at low interest rates and investing in much higher yield currencies, such as the dollar, substantial profits could be made. This yen “carry trade” created liquidity and mobility in the global financial markets and became pop
