Financial services are big business in Japan.
The country has a banking sector that is bigger than all of Europe and the United States combined.
And yet, for many, financial services are something of a mystery.
The industry has a reputation for being a grey area, but it is an industry that is very well regulated.
And it is a lucrative one.
According to the OECD, Japan has one of the highest per capita incomes in the world.
That’s due in part to the fact that Japanese companies can make huge sums of money off the back of their firms.
So why, then, is Japan struggling to innovate?
In the early 1980s, Japan was the epicentre of the Japanese bubble, fuelled by the Japanese yen, the Japanese pound and the Japanese dollar.
This bubble burst in late 1989.
The currency was falling.
Japan’s economy was in freefall.
The yen lost about 60 per cent of its value over the next three years.
The Japanese government was forced to introduce massive spending cuts, raising the cost of goods and services.
Japanese banks started to fail.
And the Japanese economy was heading towards collapse.
The Japanese government decided that it had to cut its spending.
It had to.
And so, the government introduced a series of tax cuts in 1991.
The idea was that this would boost the economy and bring the country back to a more normal level of living.
It was a mistake.
The economy went into recession.
And by the time Japan’s fiscal and monetary stimulus had fully come into effect, the economy was back in a recession.
The economy was never the same again.
Japan was now in recession again.
In 2000, the global financial crisis hit.
The world was awash with trillions of dollars in bad debts.
The banking sector collapsed.
The markets lost billions of dollars.
And that was just the beginning.
With the global recession behind them, the world was in a terrible position.
And what should the Japanese government have done?
The government did not know what to do.
At the time, Japan had a relatively small economy, and there were no signs that Japan was on the brink of another crisis.
It was a case of being on the sidelines, but also having the ability to respond to the crisis, says Shigeru Ohno, professor of international affairs at Tokyo’s National Graduate University.
So the government started to do something.
What the Japanese did was it took a very conservative approach to fiscal policy.
It cut spending, but only for the most basic purposes.
This included food and fuel.
This was a prudent measure.
And then, it raised the tax rate on the wealthy.
This is what the OECD called a “tax hike”.
But what happened next was something much more controversial.
Instead of raising taxes on the rich, Japan raised taxes on corporations and small businesses.
Japan has been criticized for this for years.
Japan did this in response to the global economic crisis.
And as a result, it had a huge impact on the economy.
There were also very big cuts in the government’s investment and trade policies.
This meant that the Japanese national debt grew from 1,700 trillion yen in 1990 to 2,600 trillion yen by the end of 2002.
So why, at the time of the crisis in 2000, was the government doing this?
The government had been spending less than it had in the previous decade.
And when the economy began to shrink, this was a problem.
So, it decided to raise the budget deficit, which it had been running at a very low rate for years and years.
But the government had to keep cutting spending, and it didn’t know how.
“The budget deficit is not a problem when the budget is growing at a healthy rate,” Ohno says.
And the government decided to take a drastic measure, and in 2002 it went to the next step and cut the budget by 1.3 trillion yen. “
That’s when you’re facing a crisis.
And the government decided to take a drastic measure, and in 2002 it went to the next step and cut the budget by 1.3 trillion yen.
That was a huge cut.
And now the economy is in a depression.
When you look at the OECD’s list of countries with the biggest deficits, Japan ranks as number one.
So what went wrong? “
They’ve been able to invest abroad, but they haven’t been able or willing to invest here.”
So what went wrong?
What happened to Japan’s ability to innovate and grow?
Takeda says the biggest problem is that the government didn’t understand how to manage the economy properly.
For example, there is a debate over the fiscal stimulus.
There is a perception that Japan should do more.
But there is no evidence that this was the case.
Instead, Japan simply decided to cut spending