Ibragim Satvaldy | 11.08.2024
Japanese Economic Woes Extend As Rates Rise
Japan has always been one of the biggest economies in the world. However, according to IMF data, Japan has dropped one place to 4th in the largest economies in the world rankings, as of the 1st of July 2024. The list states that Germany surpassed Japan, reaching 4.59B dollars of GDP compared to Japan’s 4.11B dollars. The economic crisis in Japan happened mainly due to deflationary pressures and low growth. In order to fix it, the BoJ has had to choose between preventing currency depreciation or prioritizing the stock market. It appears that the BoJ has chosen to allow the market to suffer for the sake of the wider economy.
The BoJ decided to end its loose monetary policy and introduce the first rate of interest hike in 17 years. The reason for tightening the interest rate up to 0.25% is aimed at stabilizing the yen and achieving “positive economic outcomes” , said the Japanese Prime Minister, Fumio Kishida. More specifically, Kishida is alluding to the fact that for small- and medium-size companies that employ the bulk of Japan’s workforce, A weak yen has pushed prices of raw materials and energy. That’s why the BOJ has taken action because it has been under pressure to bolster the Japanese currency.
However, all of these changes in Japan’s economy have led to a stock market crash. Many shareholders, like Toyota, Panasonic and Japan’s biggest banks are suffering from rising interest rates because of investors' fear for the Japanese market’s future. After reaching the all-time peak of 42,224.81, the Nikkei dropped 17.1%, from 11th July to 9th August, having recovered from the recent low of 31,396.11. When it comes to the individual companies, shares in Toyota and Panasonic fell by 17.3% and 21.5% over the same period.
The stock market collapse has caused uncertainty in the Japanese economy. As a result, it led to low consumer confidence and lack of investment in Japan. “I didn’t expect stocks to fall this much – it’s a disaster.” said the chief fund manager at Mitsubishi UFJ Asset Management, Kiyoshi Ishigane. Therefore, we might expect an economic decline in Japan due to their financial system’s crisis.
As of today, Japan’s financial situation seems concerning. In the short run, the BoJ’s decision to prioritize yen may bring currency stability resulting in some economic benefits, such as control over inflation or international competitiveness. However, in the long run, Japan will likely re-enter recession due to some business failures caused by the stock market crash, potentially leading to some negative consequences, like unemployment and bankruptcy among some companies.
The BoJ decided to end its loose monetary policy and introduce the first rate of interest hike in 17 years. The reason for tightening the interest rate up to 0.25% is aimed at stabilizing the yen and achieving “positive economic outcomes” , said the Japanese Prime Minister, Fumio Kishida. More specifically, Kishida is alluding to the fact that for small- and medium-size companies that employ the bulk of Japan’s workforce, A weak yen has pushed prices of raw materials and energy. That’s why the BOJ has taken action because it has been under pressure to bolster the Japanese currency.
However, all of these changes in Japan’s economy have led to a stock market crash. Many shareholders, like Toyota, Panasonic and Japan’s biggest banks are suffering from rising interest rates because of investors' fear for the Japanese market’s future. After reaching the all-time peak of 42,224.81, the Nikkei dropped 17.1%, from 11th July to 9th August, having recovered from the recent low of 31,396.11. When it comes to the individual companies, shares in Toyota and Panasonic fell by 17.3% and 21.5% over the same period.
The stock market collapse has caused uncertainty in the Japanese economy. As a result, it led to low consumer confidence and lack of investment in Japan. “I didn’t expect stocks to fall this much – it’s a disaster.” said the chief fund manager at Mitsubishi UFJ Asset Management, Kiyoshi Ishigane. Therefore, we might expect an economic decline in Japan due to their financial system’s crisis.
As of today, Japan’s financial situation seems concerning. In the short run, the BoJ’s decision to prioritize yen may bring currency stability resulting in some economic benefits, such as control over inflation or international competitiveness. However, in the long run, Japan will likely re-enter recession due to some business failures caused by the stock market crash, potentially leading to some negative consequences, like unemployment and bankruptcy among some companies.
