Term Paper

Infrastructure Investment, Long Term Recession of Japan

and Lessons to Asia
1. Introduction
Japan has suffered from sluggish economic growth and recession since the early
1990s (Yoshino, N., and Farhad, T., 2015). Infrastructure investment is a large public
works and has been carried out continuously to help out an end to economic recession.
The goal of infrastructure investment is to provide the bases for prosperous and
comfortable lives of the people. Additionally, aggressive macroeconomic stimulus,
unprecedented financial sector interventions, and restocking associated with global
inventory cycles are providing an important boost to economic activity. However, the
durability and shape of the recovery are likely to vary across economies, among other
things, on the health of their financial systems, the soundness of private sector balance
sheets, and their relative dependence on external demand and financing (Syed M,
Kenneth, K. and Kiichi, T, 2009). Therefore, it is essential for countries in Asia to look at
the causes of Japan’s long-lasting economic recession and the possible lessons learnt to
develop their respective countries and to avoid repetition of the same experiences.
This term paper aims to understand the importance of infrastructure investment,
the causes of long-term recession of Japan and experiences with nascent recoveries
during its banking crisis. Finally, the paper also review some lessons learnt that can help
countries in Asia to improve their economies. The study is done through conducting
literature reviews through different reports as well as the lecture notes of Professors
presented in the GRIPS Forum.
This paper is organized into five sections including introduction, understanding
Abenomics and infrastructure investment, long-term recessions of Japan and its causes,
lessons to Asia and conclusion.

2. Understanding Abenomics and Infrastructure Investment

According to the ‘Abenomics Brief: Overview of Japan policy under the second
Abe administration and major implications on major industries in Japan cited by
Yoshihide Takehisa and the lecture notes presented by Prof. Naoyuki Yoshino and Asst.

Prof. Farhad Tahizadeh-Hesany, the following section describes the articulation of the
new position on the economy and its economic growth. The new policy namely
Abenomics that set up a three-pronged strategy which tie together the country’s
aggressive monetary policy, fiscal consolidations and growth strategy.
Aggressive Monetary Policy, the government formulated a supplementary budget
of JPY10.3 trillion as an emergency economic measure with the intention of having an
immediate impact on the national economy. Japan also joined the Trans-Pacific
Partnership, in part as a way to dampen the current deficit-led recessionary cycle, and
implemented supportive policies that were intended to enhance growth.
On the monetary policy, the government and the Bank of Japan promulgated a
joint statement on overcoming deflation and achieving sustainable economic growth in
January 2013, which set the price stability target at 2 percent in terms of the year-on-year
rate of change in the consumer price index. The measure represents a policy of bold
monetary easing over the coming years.
Fiscal Consolidation, in the area that have the greatest impact on the infrastructure
sector, a significant portion of the JPY10.3 supplementary budget has been earmarked for
accelerating the reconstruction efforts in areas damaged by the 2011 earthquake, while
sums have also been put aside for strengthening disaster prevention and national
resilience. Along with a more flexible approach to managing economic and fiscal policy
and the implementation of a new growth strategy and resulted of having a positive effect
on the stock market and on the foreign currency market.
Growth Strategy, is another major step forward for Japan to promote industry
regeneration, reinforcement of human resources and reformation of employment system,
strengthening the competitiveness of business locations, realization of clean, economic
energy supply and demand management, realization of society with health and longevity,
expansion of produce export and enhancement of competitiveness, and reinforcement of
technology innovation and information technology.

3. Causes of Long term Recession in Japan

Japan is suffering from an economic crisis that hit the country in 1989-90, when
the bubble economy and the country’s growth rate during this period has been the lowest
among the world’s major developed countries (Yoshino and Farhad, T., 2015). Japan has

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high land prices and high stock market prices collapsed. Both banks and businesses had
much of their assets in either land or in cross-shareholdings with companies to which
they were allied. Suddenly, these assets - and therefore the debts on which they were
secured - were wiped out. As a result, banks became burdened with bad debts and lending
to companies for expansion dried up (BBC, 2002 and Ohno, K., Nihon K., Micro, S.,
2002).
Gradually, companies, which produced in Japan, have shifted some of their
factories abroad, increasing unemployment. And as unemployment rose to record levels,
people have stopped spending so freely, causing prices to drop. This makes everyone
more reluctant to spend in the hope that they might get even greater bargains in the future
(BBC, 2002 BBC and Ohno, K., Nihon K., Micro, S., 2002).
Based on Ohno, K., Nihon K., Micro, S., 2002, Yoshino and Farhad, T., 2015,
and BBC, 2002, there are several reasons for this long-term stagnation which discussed
below:
• The banks' non-performing loans. Since banks failed to get rid of bad debt
(and the government did not encourage this effectively), financial
intermediation was impaired, which in turn hurt the real economy. This
vicious circle continues until a bold measure to clean up the banks' balance
sheets is taken.
• Japan's economic system has become obsolete. Japan's relational systems
(lifetime employment, seniority system, subcontracting, and so on) may
have worked well during the 1950s and 60s, but they are no longer efficient
in the age of globalization.
• Long-term changes of the Japanese society. Japan has a rapidly aging
population and snowballing government debt. The Japanese people are
uncertain about their future, especially concerning the rising tax burden,
availability of jobs, medical care, and the sustainability of pension schemes.
This pessimism slows down consumer spending and business investment.
• The lost competitiveness and the hollowing-out phenomenon (as firms
invest abroad, jobs will disappear at home) of the Japanese manufacturing
base are a great threat. The recent rise of China as the factory of the world is

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raising concern (but China's growth may slow down; China itself has many
economic, social and political problems in the age of WTO).

4. Lessons to Asia
In this section there are some ways to providing some crucial lessons learnt to
Asia for preventing long-term recessions so that they can keep economic growth in the
future as mentioned by Naoyuki, Y. and Farhad, T, 2015:
• Investment more on physical infrastructure help to boost economy growth.
The result has been some very well equipped for economic growth such as
case of Philippines (i.e., Southern Tagalog Arterial Road-STAR), Qinghai-
Tibet railway, Japanese bullet train, and Uzbekistan railway, etc. The
government has repeatedly tried to stimulate the economy by spending money
on public works and working through Public Private Partnership (PPP).
• Requirement of doing reforms and the aging population. An aging
population and early retirement are some of the key contributing factors to
Japan’s slow economic activity. Therefore, wage rates should be based on
productivity rather than seniority. It is easier for companies to hire elderly
people if their wage rates are set according to productivity. Healthy elderly
people should be able to find jobs based on their experience and the
retirement age should be postponed to counteract the diminishing working
population.
• Future driven by Small, Medium Enterprises (SMEs) and can access to
finance. The government is to ensure SMEs have access to easy financing
for research and development. For example, in Japan, there are 3.85 million
SMEs and microbusinesses spread throughout Japan are the backbone of the
Japanese economy (METI 2014 cited by Naoyuki, Y. and Farhad, T, 2015).
These SMEs are crucial in supporting economic growth and employment as
they employ almost 70% of the working population and account for a large
proportion of economic output.
• The farming population is aging and the government needs to provide
sufficient funds to ensure an efficient and competitive agricultural sector.
Leasing system of farm land and Hometown investment Trust Funds.
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• Reduce Transfers from the Central to Local Governments. Government

spending between the central and local governments has to be clearly
defined. The allocation of taxes between the central government and local
governments must be determined together with expenditure.
• Hometown Investment Trust Fund which Invest in SME and start business
company, agricultural farmer and solar power.

5. Conclusions
This term paper is a review of literature to get more understanding on Abenomics
and infrastructure investment, examined the causes for Japan’s long-term recession after
the burst of the bubble in the 1990s and providing lessons learnt for countries in Asia.
The Japan’s new start, Abenomics and infrastructure provided evidence for
articulating on the economy and economic growth. Additionally, the review of long-term
recession of Japan is a very good example for other countries especially Asia to be
recognized these causes and learn from it to avoid the same problems happened to their
respective countries. These experiences after the lost decade of economic recession of
Japan and the proposed suggestions could be lessons for Asia to prevent long-term
recessions and therefore can maintain economic growth in the future to make countries in
Asia to have a prosperous and healthy nation.

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References
BBC, (2002). What caused Japan’s recession? Article published on Wednesday, 14
August 2002, 17:03 GMT 18:03 UK. Browsed on 1 January 2016 from http:// news.
bbc. co.uk/2/hi/business/2193853.stm
Murtaza S., Kenneth K., and Kiichi T. (2009). “Lost Decade” in Translation: What
Japan’s Crisis could portend about Recovery from the Great Recession. IMF working
paper.
Ohno, K., Nihon, K., Micro, S. (2002). Renewal of Japan's Economy Begins from
Microeconomic Cleanup, Nihon Keizai Shimbun, December 31, 2002.
Yoshino, N., and Farhad, T. (2015). Causes and Remedies for Japan’s Long-Lasting
Recession: Lessons for the People’s Republic of China. ADBI Working Paper 554.
Tokyo: Asian Development Bank Institute. Available: http://www.adb.org/
publications/causes-and-remedies-japan-long-lasting-recession-lessons-china/
Yoshino, N., and Farhad, T. (n/d). Infrastructure investment, long-term recession of
Japan and Lessons to Asia. Slides presentation.
Yoshitomi, M., Nihon, S., and Tsusetsu, K. (1998). (The Truth of the Japanese Economy:
Beyond Popular Views), Toyo Keizai Shimposha, 1998
Yoshihide T. (June 2013). Japan’s new start: Abenomics and infrastructure, KPMG
Japan

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