Why is that so devastating?

Shunya Asano

              Although this economic crisis happened in European countries, we observe that some parts of Japanese economy are also affected severely from this circumstance. Recently, Japan is one of the countries which has huge financial crisis. Moreover, Japan has 6 trillion and 6800 hundred million dollars debt in 2011, this debt number is approximately 184% of entire Japanese GDP per year, and this is the worst number in developed countries (Odawara, 2011). The Japanese government is now attempting to get out this severe economic situation, but the financial crisis in Europe exacerbated the Japanese economy.

              One of the most crucial reasons is the strong Japanese currency. When we hear the word “Strong,” it sounds like profitable to the Japanese economy. Nevertheless, it creates totally negative influence. Historically, since Plaza accord was negotiated with Japan, America, England, West Germany, and France in New York 1985 (“The Plaza Accord,” 2009), Japanese companies started to shrink and stagnate its development of profits and gains. According to Investopedia, after the negotiation of Plaza accord, the Japanese currency plummeted from around 242 yen to around 153 yen per one dollar in 1986. In July 12, 2012, the Japanese currency was 79.491 yen per 1 dollar recently. This economic circumstance harms and undermines the stimulation of the Japanese economy because decline of the Japanese currency induces the increment of import rate. For example, when the Japanese companies can access to purchase import materials much lower cost, they will import to reduce their cost rather than buying of the Japanese products. This means that the demand from the Japanese products will be decreased, and that will damage the profits of the Japanese producers. In addition, when the manufactures in Japan lose their gains, they have to reduce the employment to stabilize their financial management. After this circumstance, the increment of unemployment will create the lack of customs since they can not afford to purchase materials and products by the loss of salary. Finally, this economic circulation will also make recession to the Japanese manufactures which is called deflation spiral.

This currency rate significantly decreased when the Greek government confronted the financial crisis. This indicates that international investors purchased the Japanese currency as a safe bond, and investors rely on the Japanese economic stability. This also explains that Japan is still regarded as an economic stable country. However, this investing movement actually damages Japan since 95% of the Japanese government bonds are hold by domestic investors (Odawara, 2011). Holding bonds by foreign investors can not be reliable and functioned when the government actually encountered financial crisis because if foreign investors hold the government bonds, the government will not be able to collect money from their citizens by taxation which the Japanese government recently attempts to increase the taxation from 5% to 7%. These recent statistics and news show how the Japanese government and economy are in recession which was initially influenced by the Greek financial crisis.

Therefore, when international investors sold European Union’s bonds such as Greece and purchased the Japanese bonds, it affected severely to the Japanese economy.

Works Cited

Ikegami, Akira. Ikegami akira no manaberu news. Tokyo: Kairyusha, 2010. Print.

Odawara, Ken. Jijiryoku hattenhen. Tokyo: Riburu teku, 2011. Print.