Lesson from Japan

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Japan went through its “bubble years” in the 1980′s, with the Nikkei index peaking at 39000 (versus 8664 today). The blog well remembers standing in front of Tokyo’s Imperial Palace in Tokyo in 1988, when its land was said to be worth more than all of California.

Since then, housing and stock market bubbles have occured in many other countries. Whilst Japan was picking up the pieces, after its bubble burst in 1990.

In his first interview today, the new Bank of Japan Governor says they found no “magic formula” that could “spare economies the pain of dealing with the excesses that led to the bubble in the first place”. He adds that “alarm bells should have gone off when the global economy was growing at an unsustainable 5% from 2003-7″.

The result, he warns, is that “the economic cost is so huge”, fiscal stimulus or low interest rates will make little difference. In Japan, for example, “the cumulative drop in property prices was 60-80%”. The uncomfortable lesson from Japan, he says, is that “the economy will have to grind out the excesses – high house prices and unsustainable household debt – that inflated the bubble in the first place”.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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