What’s Going On With Japan’s Economy?

What's Going On With Japan's Economy?
Image via Flickr by jenniferphoon

Japan has been going through a rough recession that has lasted for years. Their society is also going through a lot of changes in its demographics as the young have fewer and fewer children. But for the world’s third largest economy to continue to struggle as the world slowly recovers means investors, CFOs, and financial advisors are taking notice when it comes to money matters in this Asian country.

Recently, the government and the Bank of Japan have been trying to breathe new life into their economy. They have already instituted three different stimulus efforts and may put out a fourth in less than 6 months. Many of these stimulus packages have been directed at holding up the Japanese economy by promoting rebuilding and reconstruction efforts in the tsunami- and earthquake-wrecked Fukushima region.

Japan’s Problems

As the US deals with financial problems, including a possible debt crisis, it has been holding CFOs and corporations back from investing and spending their cash reserves. Japan seems to be well in advance of US problems. The country’s debt is up to 220 percent of their GDP, while the US debt to GDP is only 73%. Japan may be a display of what goes wrong when debt gets out of control and stimulus becomes the standard recourse for corrective action.

Analysts are concerned that Japan’s economic policies and stimulus plans are not set up properly to ensure long-term stability. This is a problem, considering the already-fragile state of the global economy as it slowly returns to growth after the financial crisis of a few years ago. A shock in the third largest economy could send global gains backwards.

One editorial writer claims that Japan should be “letting zombie companies go bankrupt, phasing out costly agricultural subsidies, and raising Japan’s low rates of legal immigration” to start solving some of its demographic and financial issues.

Future is Uncertain

If you’ve been looking into Asian markets for expansion and investment opportunities, Japan might be a market to hold off on. There are plenty of other growing markets with far fewer problems than Japan’s. It’s going to be interesting to see how the Japanese government and those in charge of the Bank of Japan handle the coming problems facing the country. For the global economy’s sake, let’s hope they make the right choices.

[via NYTimes]