Japan's Economy Is Currently A Complete Mess

Everyone knows that the United States is currently battling through a once-in-a-lifetime economic crisis right now.

Bank bailouts. The very real possibility of a GM bankruptcy. Plummeting real estate values. Trillions upon trillions of dollars lost by investors in the stock market. Frozen credit markets. Nerves frayed over mounting government debt. Countless other problems.

Things are bad right now in the United States. Really bad.

However, if you thought that things were bad in the United States, wait until you see Japan.

Japan, in case you didn't know, is the second largest economy in the world behind the United States.

Their economy was once the envy of the world, a "Japanese miracle" as it was called.

Then the 90s hit.

Their stock market plummeted. Real estate in the country crashed. The Japanese government spent trillions of dollars to try and keep the economy afloat, which resulted in trillions of dollars of increased government debt.

The country endured a long, L-shaped depression, and the 1990s officially became known as the "lost decade" in Japan.

The current economic meltdown certainly hasn't helped Japan's economy.

As a matter of fact, the economy is horrible, and only getting worse.

After the Japanese economy contracted at an annual 12.1% pace in Q4 2008 (the largest contraction in 35 years), Bank of Japan Governor Masaaki Shirakawa warned that "we're going to see an ongoing deterioration in the corporate sector".

Estimates have the Japanese economy contracting at an annual pace of 10.9% in Q1 2009.

These are horrifically bad numbers, even compared to the current plight of the United States.

Japan has a host of problems moving forward, including:

1. Their national debt is staggeringly high.

Sure, the United States owes more money in terms of real dollars, but the Japanese government owes WAY more as a % of their annual GDP.

Japan owes about 170% of their annual GDP, while the United States owes around 70%.

2. Japan has an export-based economy. The average US and European consumer have closed their wallets for the time-being.

There is a good chance that the US consumer, who has been the grease in the engine of the global economy for years, will permanently alter their spending habits (to the detriment of export-based countries like Japan).

Decreased exports mean job and wage cuts, which certainly won't help the Japanese economy.

3. An aging population. Japan has one of the oldest populations of any country in the world, and this will only increase the burden on the Japanese government moving forward.

4. Stimulus package may not work. Japan's recently announced stimulus package may not have the intended effect if the global economy does not begin to tick higher.

Every country on the planet is currently battling through a number of problems associated with the global economic meltdown.

However, Japan's current situation seems extremely precarious, especially if the global economy doesn't begin to forcefully rebound.

Filed under: The Economic Meltdown




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