Japan- Active Financial Volcano

Japan- Active Financial Volcano

Hey, can you raise any question about economy of japan. At first, surly not. even i were not raise question until the assignment of finance class was given to me.

that assignment was to analyze the prominent index of any country. i have chosen to work on Netherlands, as it was the first nation where first modern banking system was established in 1600 and first multinational company of the world…
can you guess the name of that company….
that company was "Dutch East India Company" …. This company has given annual average return of about 18-20% for 200yeas.

anyway…lets come to topic. I have compare the return anaylsis of benchmark index of Netherlands(AEX) with 5 others…
i have taken Nikkie225 also.

But i was shocked to see the annual retruns on the time horizon of past 12years.
BSE has given 460Rs against investment of 100Rs in 1998, AEX of Netherlands given 140Rs in the same way… DJI(Dow jones Industrial Average) has given around 135Rs…but i schooled to see….Nikkie225 has given just 46Rs against the investment of 100Rs in 1998.

See the chart for the explanation.

According to me…Japan did a serious mistake in 1985, on 22Sep by signing Plaza Accord. In which governments of FRANCE, WEST GERMANY, UNITED STATES, JAPAN, UNITED KINGDOM , to depreciate the US Doller in relation to Japanese yen and German Deutsche mark by intervening markets.
Of course US has setup all this arrangement, to save its exports(to redure trade deficit), as their main exports such as Automobile and others are not able to stand against the Production capacity of Japan and Germany.

But in that condition why any country agreed to appreciate its currency. But they did it.
Yen's Appreciation hit the export sector: Economic growth rate was 4.4 in 1985 was dropped to 2.9 in 1986.
on that to offset the stronger yen, the BANK OF JAPAN has reduced the interest rate form 5% to 2.5% with the stimulas package. This has turned to the biggest financial bubble in the history of Japan(like we have just seen with US-its housing bubble and its burst).
To respond it, govt has again raise rates to 6%in 1989-90. After that market collapse.

See the chart of Nikkie225 on the time horizon of 1985-2010. Since then the fall is continue at present.

From 1990-2000 money around 25% of GDP has been provided to the system. But mistake they did was….they were not checked the accountably of the projects,and their investment gone like..digging hole and then filling them activity.(source: Ministry of Japan)

anyway… to fund them they have used Public pension fund's money… at present its about to end…. see the chart.

How will japan fund their budget in future? one day…. foreign debt will become unbearable. is this is a volcano which is active and nobody is recognizing it… or imagine the situation… Greece case happen with Japan in next 5years.

But at last…. i wish to see next crisis in form of "Currency Crisis" …(downfall of dollar and other big currency)
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