Sample Case Study on The Economy of Japan

The Economy of Japan

  1. The economy of Japan has stagnated over the past decades mainly due to the collapse of the stock market, which sent prices down greatly. Banks in Japan after the collapse of the stock market experienced bad debts and this made them to contract lending to the citizens. The Japanese consumers reacted to the contraction in lending by banks by greatly reducing their spending and depressing the domestic demand, thus leading to a situation of stagnant economy. This stagnation is because there are minimal activities in the economy that stimulate its growth.
  2. The history of Japan shows the need for banks to have strict lending practices that would reduce heavily accumulating and bad debts that eventually lead a deteriorating and stagnant economy. Countries need to get rid of old and new debts on time since these debts are the main driving force to the deflation of the economy of a country. Countries should also take firm control of the finances and build emergency savings that will curb with issues such as the bad debt. Without the bad debt then demand and supply patterns of a country will not be affected so this will lead to a growing economy.
  3. The Japanese government should increase the inflation target since this will stimulate the economic activities in the nation. The producers will now be motivated to produce goods and this will create competition and with inflation tendencies banks will tend to lend due to the increasing interest rates. This lending in turn will motivate spending by the consumers of Japan and the internal demand will be high so as will be the supply and this will grow the economy of Japan to the heights it once was.
  4. The benefits of operating a business in the stagnating economy of Japan is because there will be cheap and readily available labor; this will cut expenditures greatly for the business. The other benefit is that there will be no fear of increasing taxes for the business with the increasing economy due to the stagnation of the economy.

There are quite a number of costs that will be incurred by operating a business in the stagnating economy of Japan. There will be reduced business revenues due to the reduced customer spending in that country. Stock will always be bought by the business but the number of customers who will show up to purchase is very few; this will make the business to incur more costs than the profits that will be made by the business. Another cost is reduced credit from the banks in the country to operate the business. The Japanese banks have cut most borrowings so this will make the business incur extra costs in raising money that is intended for the growth of the business. These are costs that can really squeeze the working and operation of the business to a ground level.

The risk involved with operating a business in Japan is that the business can experience closure at any time. Due to the hesitance of consumes to spend and also banks to lend to the businesspersons, the business will run on many costs than benefits. This means the business will be spending more than it earns and this is very catastrophic for any business. Operating in such an environment will always have the risk of closure of the business due to high costs of operation.

  1. I would prefer to invest in India. This is because the economy of India at the moment is growing at a fast and steady rate. This in turn signifies that there will be increased domestic demand in that country. Investing in such a country will really grow the business to greater levels. The steady growing economy is the reason behind the high consumer spending of India.