One of the reasons for the stagnating economy is the deflation in the prices of assets and the other household commodities. This was further worsened by the households’ attitude of anticipating a further fall in the prices. This saw the hoarding of money by various households for the belief that they could purchase goods when prices have fallen down. This therefore resulted to continuous fall in the prices since the manufactures lowered there prices in order to realize sales. It also resulted to a series of economical problems such as the fall in wage rates as the companies were strategizing to meet the cost of production. Moreover, the potential investors were further discouraged because of the fall in prices. They thus prevented further investments and even making some investor to withdraw their businesses.
There was equally a failure by the institutional features to evolve at the same pace with the emerging transformation, internalization, and modernization of the rest of the economical sectors. For instance, the old financial systems; zaibatsu and keiretsu, whose financial frameworks still influence the new banking systems, have continued to make it difficult to sufficiently respond to the current economic problems. Additionally, the implementation of the ‘ever-greening’ of loans as a banking culture has also denied the less popular but potential investors the chance to invest. The banks have continued to limit their lending only to the firms which they have close ties with. Therefore, this habit makes it difficult to boost the economy since the rate of investments is very slow.
To remedy these problems, I think various fiscal and monetary solutions should be put into place. For instance the commercial banks activities should be regulated by the central bank of Japan. Firstly, there interest rates should be revised downwards so as to ensure that the potential investors are capable of obtaining the loan facilities. All the sectors of the economy should also be brought to a balance without neglect to any sector so that they all contribute towards the National Income. These sectors include employment, investments, trade and so on. Additionally, I think there should be strict price control policies put by the government; price floors and ceilings in order to ensure that the households do not further contribute to the fall in the commodity prices by hoarding the money.
Foreign Direct Investments (FDI) should also be encouraged to the economically progressing countries such as U.S and China so that where prices are not badly affected. On the other hand, foreign investors should be welcomed into the country. I think this would be very important since the foreign investments will pose a lot of competition to the local investors who will work hard to expand their businesses. However, the foreign investors should also be encouraged to ensure that they provide employment opportunities to the citizens so as to help boost the economy. I further think that it may be very important if the government can come up with strategies to boost the rate of public spending; commodity consumption level. This is by creating the short contract jobs for the unemployed, especially the youth so as to increase their propensity to consume.
The economic policy-makers should also be allowed to perform their work independently without any political interference. Finally, the country should do much towards developing the public infrastructure such as the road and communication networks. This would make it favorable for more investment activities within the country; it will also play a major role in attracting more foreign investors.
In conclusion, in order for the Japanese economy to grow, there should be an application of both the monetary and the fiscal policy measures.