The Japanese economy was once the best in the other world
. But now it has suffered two decades of low economic activity since the stock market crash in 1989. To make her matters worse Japanese industrial production which has been stagnant for many years plunged by 15% in 2001.
As a result Japan's output of 2002 is 10% below its 1989 level and it no longer enjoys best forex trading currency (the yen). Thus the once power economy of the 1980s has become the undisputed loser of the industrial world in terms of how far they have fallen. This even eclipses the fall that Argentina took. Now at the start of a new decade its economic forecast looks dismal
Unfortunately for the appeal of Japan the country has become an excellent case study on the importance of a well functioning financial system. Many of the country's economic woes can be extruded to troubled financial intermediaries, especially the commercial banks. By the end of the bank 90s the Japanese banks were so loaded with bad loans that they were reluctant to make any new loans. The problem is further compounded by the weak capital position of many Japanese banks. Lending by Japanese banks fell almost 5% by the end of 2009.
When banks and other financial intermediaries are unwilling to make new loans, businesses must seek financing and direct credit markets or forgo promising investment opportunities. When the economy struggles as it did in Japan during this time however not many investors are willing to purchase the direct financial claims of risky businesses therefore promising investment opportunities are not pursued and the economy languishes.
Clearly the Japanese economy and financial system are stuck in a vicious economic cycle despite the fact that the Japanese government's economic stimulus package called for banks to make more loans, new measures to support the stock market and a pledge to forestall any financial crisis by bailing out failing banks (none of these are forex trading tips that a trader should employ). It didn't work for Japan and it doesn't look like it'll work for the US. In fact the US may be crowned the biggest loser of all.