Global Financial Crisis – 2008

Introduction

Since the 20th century, Great Depression the Global Financial Crisis of 2008 (GFC) is classified as the most destructive financial problem to have faced nations (Fackler, 2008 1). The financial crisis was headed by an economic flourishing of some degree and utmost investment rates globally. In fact, prior to the occurrence, most economists had raised their worries in regard to the rate of credit flow in America along with high rate of investment which is not healthy for any economy regardless of its size. The crisis commenced in the united states prior to spreading rather rapidly to the rest of the world not sparing even some of the well-developed economies. This led to huge economic losses thus affecting the well-being of some of the largest banks across the globe (Fukuo and Yuan, 2009 1). Japan which holds one of the largest economy and maet and industry both for supply and receiving goods was affected the most. In the attempt to reverse and stop the crisis which was rapidly affecting the economy, in general, most governments including that of Japan developed a range of strategies with the aim of securing their banks and all other financial organizations being the heart of the economies and ensure that they never collapsed (Fackler, 2008 1). This attempt and the fact that the issue had long developed led to the lengthy recession which ended in 2008. This report will seek to analyze the effects of the GFC on Japan’s economy and society along with the effectiveness and challenges faced by the policies developed to revert the issue and stabilize the country.

Despite the fact that Japan unlike Europe and the united states was not affected heavily from the housing downfall and toxic properties, its economy was affected even more by the crisis compared to both continents (Fukuo and Yuan, 2009 1). Japan’s shrinkage is mainly based on the steep downfall of its external products demands. with the economic and demand decrease in the united states and Europe, these created an intense impact on Japan because its export net was drastically decreased in addition to its exports in the Asian states where good were previously been assembled prior to the ultimate export to the united states. The general GDP decrease in Japan within the fourth quarter of the financial year 2008 was close to double digits in regard to that of the United States which revolved around 12.1 percent versus 6.2 percent of US (Fukuo and Yuan, 2009 1). Most economies, in general, were mainly affected by the fact that their domestic demand had decreased drastically but for Japan, it was affected harder given that its economy is dependent on the exports which were no longer being demanded.

Prior to the financial crisis there was an already stable economic set up where most of the advanced nations amongst them Japan where involved in the export of major components to most of the developing states such as China which would in turn play part in the assembling and exporting of the final products to Europe and the united states in exchange of finances and economic treasures from the market (Fukuo and Yuan, 2009 1). However, with the sudden reduction in regard to exporting products to the United States affected the stability of these markets. America’s imports decreased by more than 19.6 percent by the fourth quarter of 2008 and as the exports to the developing states decreased imports lowered thus Japan, South Korea among other states suffered heavily based on the loss of exports (Fukuo and Yuan, 2009 1).

The largest share of Japan’s exports is made of capital and resilient consumer products such as machines and vehicles. In this context, it is probable that the manufacturers suffered from decreased products demand from the global setting (Savona, Kirton & Oldani, 2016 33). Consequently, most households resulted in holding their purchases based on the limitation of liquidity and decreased expectations. In other words, the demand mainly reduced since consumer’s demands mainly shifted from products that are characterized by high prices to inexpensive goods a trend that particularly benefited certain companies such as Walmart. Given that Japan is particularly involved in the production of high-end goods this crisis created a disruption and a major shift in reference to demand which hurt the economy severely. With the heightening of the crisis Yen which is Japan’s currency appreciated rather drastically. Previously in 2007, it stood at 106 but by September 2008 the appreciation n was about 136 (Fukuo and Yuan, 2009 1). The appreciation appeared to be positive in regard to import since the earning was higher but the net of exports decreased drastically. With such an impact such an operation resulted in a major lag thus contributed to the country’s economic drop. Japan economy dropped into the recession during the second last quarter of 2008 based on the fact that businesses began to limit their spending while the general exports were characterized by a negative contribution to this growth. Prior to the recession, Japan was the seconding economy after the United States globally but slipped into the decline and was mainly affected by weak export development and decreased corporates spending. Within the first two months of the crisis, the GDP of the country had decreased by close to 0.5 percent. Japan was mainly affected by the swings in general because the economy was mainly dependent on its large sales to the international markets which had decreased greatly (Fackler, 2008 1). With the international and local consumption has decreased in the society the comprehensive growth of the state remained low.

In addition to the decreased demands for its products in the international markets, this was heightened further by increased prices in regard to imported commodities. With less spending by the companies, the economy was devastated and the spending power of the society, in general, was minimal. It is worth noting that the economy was not only affected in terms of corporate spending and exports decrease but also the rate of employment rose to close to 50 percent (Savona, Kirton & Oldani, 2016 33). Financial flow and consumption were close to being flat an aspect that pressured most companies to reduce the employees thus adding up to the already existing unemployment thus creating a worse situation. This resulted in less income generation and revenue for the government as the number of those that were to be taxed remained minimal. In addition, the government had to low its spending and budgets that had been set aside for development as revenue sources had severely been harmed (Savona, Kirton & Oldani, 2016 33).

With respect to the financial crisis that resulted in high financial reduction led to major effects on the society. In that with more and more individuals being subjected to poverty based on the high reliance rate on those that were already earning (Forrest, 2011 199). As most of the companies were suffering due to bankruptcy banks were no longer willing to continue lending more money to the firms based to the concerns that they would fail and end their operations and would thus not be able to repay the debts. Unlike other nations that were forced to suffer from the economic crisis based on the limited purchasing power, it became evident that Japan would not be able to sustain its economy without acquiring funds from its exports sales which it does in large quantity. This is evident based on the fact that the economy decreased its growth by 3.5 percent in the financial year 2008 amid April and March 2008 up to 2009. Japan’s trade deficit increased from 223 billion Yen in three months up to 952.6 billion Yens in the beginning of 2009 (Savona, Kirton & Oldani, 2016 34). It was in February the same year that IMF declared that the country had already fallen to a huge recession with a GDP decrease of close to 12.1 percent which remains to be the highest decrease since the late 20th century when the state was affected by the oil crisis. The economy began to rise rather gradually by the end of 2009 but more than 5 percent decrease had already been experienced with the rate of unemployment raising further by 5.7 percent (Savona, Kirton & Oldani, 2016 34). For one of the largest economy, this decrease was not a favorable one particularly for the locals and the society in general. The rate of unemployment affected the ability for individuals to pursue high education, access to quality healthcare and even food. The general statements in the country were not even favorable since the country which was focused on upgrading individuals living state would no longer support such projects. The earning of the economy was not adequate to support the growing populace with increased needs leading to increased debts which meant that the country would take even longer to recover from this state (Fackler, 2008 1).

It is not surprising that Japan remains to be among the top most influential and dominant economies across the globe. Japan’s economic anguishes extend far before the occurrence of the 2008 financial crisis. In that, the country was already experiencing fiscal policy had already been implemented in the 90s leading to the evolution of the lengthiest Keynesian global experiment (Shaw & Liu, 2011 8). With the recession further worsening the situation the debt owed by the country increased to about 240 percent of its whole GDP prior to 2014. This resulted in the current economic recovery that is being envied across the globe not based on its abilities but based on the policies that it set in place to ensure that the situation will never rise again in the future. Japan got into 2015 with a negative GDP as its efforts to increase the wage rate had failed based on the instability of most companies thus pressuring them to raise the prices associated with essential commodities, high taxation and the need to balance its demographic populace (Shaw & Liu, 2011 8).

The government began by asserting on major banks to continue lending money to some of the existing firms regardless of their bankruptcy state as a way of boosting the economy. Some of the leading central financial institutions have focused on Zero Interest Rate Policy which is widely regarded as ZIRP and this has led to the creation of more credit (Shaw & Liu, 2011 8). In response to the crisis, the government concentrated on lowering the interest rate up to Zero to increase the borrowing. This did not only permit more companies to acquire funds but also facilitated the objective of increasing their spending as the means of sustaining the economy. With this, the government was also forced to focus more on spending in the attempt to increase demand from within and abroad. This move proved successful because most countries were already recovering by the end of 2009 which means that they were fully able to afford commodities even though it was happening in the low and gradual rate (Shaw & Liu, 2011 8). Despite the consistent efforts by the government to increase financial flow through spending and low interest for the borrowed funds, reluctance in regard to increasing money supply in the market was still high based on the fact that even when the country was stable the fear of such a crisis was still dominant which forced most individuals to withhold their funds. In that, it was only in 2005 from the 90s that the country had been able to attain positive inflation anticipation via quantitive facilitation which supported the achievement of a desirable growth but did not last as the financial crisis would arrive three years later. As the government attempted to reduce commodities prices to encourage buying people opted for buying delays but with prices increase they had no option but to play a part. The zero charges policy was the most effective in encouraging buyers to make more purchases not understanding that they were assisting the economy to rise (Shaw & Liu, 2011 18).

However, it remains evident that the efforts by the government and the leading financial institutions to stimulate the economy have been successful but the economy has not been able to attain the level that it was in the 80s prior to the occurrence of the seconding World War (Yang & Heng, 2012 64). In that, the country lost is the second position to other major economies such as China. Some of the most dominant effects of the crisis remain to be the extensive period of immobile growth as the country has been able to recover from the recession but has not reached the level that it was prior. This is based on the limited abilities to stretch its operations to different sectors based on fear of such an effect. In addition, the rate of unemployment has continued to increase rather gradually which was very low in the previous periods with figures suggesting that in the 80s the unemployment level was about 5 percent while it rose up to 50 percent due to the severe recession (Yang & Heng, 2012 64). It has been noted that the figures might have decreased in general but there is still a substantial number that has not been accounted for. Also, another dominant issue is the general rise in regard to inequality. In that, as resources become scarce the distribution was affected by corruption thus subjecting most of the families to great losses and poverty. In addition, this created inequality in housing with more than 15 percent increase in homelessness which is a major issue even today in the country. With this most individuals are unable to access affordable houses or even quality services that they need an issue that intensified during the stressful period (Yang & Heng, 2012 64). Also, the country’s debt remains high even though most of it has given covered in the recent two or three years.

The policies implemented to encourage the general spending through minimizing the interest rates and ensuring that companies are given funds even though they are collapsing have acquired substantial success (Savona, Kirton & Oldani, 2016 36). In that the rate of inflation in the country in the last three years has decreased by close to 20 percent and the country is currently experiencing a positive growth and the rise of its GDP even though still struggling to recover from its debts. In addition, the unemployment rate has decreased by 15 percent from 50 percent in 2009 up to close to 35 percent which demonstrates that the economy is growing desirably (Savona, Kirton & Oldani, 2016 35). However, the fact that the policies have not been able to meet the set expectations is based on certain issues and challenges. In that, the policies have been challenges by reluctance to spending based on the fear of another occurrence. In addition, the limitation of the economy because it is in the recovery state has been a challenge as well since the export has not been regained fully.

Conclusion

It is evident from the above analysis that the 2008 Global Financial Crisis remains to be the most destructive depression that has ever occurred. The crisis mainly began in the United States because of the high investment and increased economic growth but spread to the global rapidly based on the fact that most economies are connected. Japan is among the states that were severely affected by the crisis based on the fact the economy is dependent on export sales which decreased greatly in the period along with local demand. With this, the economy would not be able to fully support itself leading to increased unemployment, inflation, inequality and decreased spending. The country has recovered due to the implemented policies that encourage low-interest rates and high spending even though the success is a progressive one.

 

 

 

 

 

 

 

References

 

Fackler, M. (2008). In japan, Financial Crisis is just a Ripple. Retrieved from http://www.nytimes.com/2008/09/20/business/worldbusiness/20yen.html

FORREST, R. (2011). Housing markets and the global financial crisis. Cheltenham, Elgar.

Fukuo, K. and Yuan, T. (2009). Why is Japan so heavily affected by the global economic crisis? An analysis based on the Asian international input-output tables. Retrieved from http://voxeu.org/article/why-has-japan-been-so-hard-hit-global-crisis

SAVONA, P., KIRTON, J. J., & OLDANI, C. (2016). Global financial crisis: global impact and solutions. London, Routledge. http://www.tandfebooks.com/isbn/9781315584843.

SHAW, D., & LIU, B. J. (2011). The impact of the economic crisis on East Asia: policy responses from four economies. Cheltenham, U.K., Edward Elgar Pub. http://public.eblib.com/choice/publicfullrecord.aspx?p=730814.

YANG, M., & HENG, M. S. H. (2012). Global financial crisis and challenges for China. Hackensack, NJ, World Scientific Pub.

Bottom of Form

 

Bottom of Form