JAPAN Reasons for Stagnation

The country, we are told, has a weak financial sector; it is over-regulated; there is not enough competition; Japanese firms are
moving production to Southeast Asia; and so on.

simple lack of clear thinking and courage.

it is too little demand. The problem is that the economy isn't using the production capacity it
already has.

To increase demand, just have the central bank (i.e., the Bank of Japan) increase the money supply, or
have the government spend more.

Japanese consumers still consume an unusually low fraction of their income, which means that
companies must correspondingly be persuaded to maintain a high investment rate if the economy
is not to have too little demand.

The problem is aggravated because the troubles of the banking system have restricted the flow of
credit. So to push demand high enough to get the economy back to more or less full use of its
capacity would require a big stimulus.

But an increase in Japan's money supply could ease the economic problem in ways other than lower
interest rates. It is possible that putting more cash in circulation will stimulate spending directly

when the Bank of Japan increases the monetary base it does so by buying off government debt and therefore makes room for spending increases or tax cuts.

JAPAN Reasons for Stagnation

PRINT LOTS OF MONEY
Well, remember that the Bank of Japan is supposed to be impotent: if it prints more
money, people will simply hoard it rather than save it.
But printing money is only inflationary if people spend it, and if that spending
exceeds the economy's capacity to produce.
So why doesn't the Bank of Japan just go out and print lots of money? The best
theory I have heard is that the bureaucrats at the Bank of Japan and the Ministry of
Finance are still mesmerized by the memory of the "bubble economy"
They believe that loose monetary policy created that bubble - which may be true and that the bursting of the bubble caused the slump of the 1990s - which may also
be true. And so they are afraid to increase the money supply now for fear of
repeating the experience.
They do not realize that 1997 is not 1987, and that doing the opposite of what they
did then only compounds the country's problems.

JAPAN- Wiki
The Japanese Bubble
Japan's stock market officially peaked on December 29, 1989. This marked the height of its equity
bull market, while the height of its real estate bubble occurred approximately two years later.
Japan's economy also peaked around this time, having grown by leaps and bounds since the early
1980s, only to grind to a standstill for more than a decade after the bursting of its equity and
housing bubbles.
With the benefit of hindsight, signs of Japan's stock market bubble were visible when prices and
valuations rose well above historic averages. Price-to-earnings ratios of the Nikkei reached nearly
70 times and property prices rose to such extreme heights that 100-year mortgages were created
to allow homebuyers the opportunity to afford houses or condominiums at inflated prices. Similar
to a P/E ratio for stocks, the ratio of home prices to household incomes reached record levels in
Japan at its peak.
Easy credit and easier bank lending helped encourage excessive infrastructure spending, housing
creation, export activity and rising equity prices - all of which eventually combined to cause the
economy to collapse. The Japanese economy has yet to recover more than two decades later. A key
part of this economic malaise was a significant rise in non-performing bank loans and and the
creation of zombie banks that were weighed down by bad debts for far too long.
Japan is now the second largest supplier of capital to the World Bank

JAPANs RESPONSE

Two decades after Japan's bubble, the country still suffered from deflationary expectations and a lack of confidence in
any sustainable improvement in economic growth. A high savings rate and risk-averse culture also mean that investors
favor bonds over other asset classes, including equities. This has kept interest rates low and the yield curve flat. A lack
of growth and inability to earn a decent spread from short-term and long-term rates has kept banks from being able to
earn their way out of a financial recession, solidifying a vicious cycle that pushed the economy from one recession to
the next.

US Response:

Fortunately for U.S. policy makers, they have had the opportunity to study Japan's responses to its bubbles and learn
from many mistakes that were made. For instance, the U.S. government provided rapid and nearly unlimited liquidity at
the height of the credit crisis. It did its best to help banks recapitalize and offset bad real estate loans so as to avoid
zombie status. Like Japanese officials, the U.S. also increased public borrowing, but it did so at a more significant level
to help the private sector clear its debts and refocus on a recovery in its business operations. The Federal Reserve also
lowered interest rates to close to zero and kept a loose monetary policy in hopes of avoiding errors that Japan made,
such as by increasing taxes too soon and sending the economy back into the doldrums.

The U.S. is widely believed to possess a risk-taking culture that is more willing to learn from and move beyond past
mistakes. Consumers and businesses in the U.S. are also not afraid to take on debt. Although this was a main cause of
the real estate bubble, it could support a recovery by providing capital. In contrast, Japanese consumers do not openly
embrace consumer debt, as evidenced by its high savings rate and willingness to accept low interest rates for safety of
principal. Japan does have an advantage over many markets due to the strength of its export markets and large

JAPANs RESPONSE
Additionally, western economies are believe to be more open to structural changes to maintain
productivity, such as rapid job cuts by U.S. firms to maintain productivity and profitability, and
sow the seeds for the next upturn in the business cycle. Immigration trends are also much
stronger in U.S. while Japan is faced with an aging workforce and lack of immigration to bring in
a constant source of young and motivated employees.
In 2010, two decades after the bubble, Japan's equity market was trading at approximately 25%
of its peak of 38,916 in December 1989. Its industrial production did not reach its 1991 levels
until approximately 2005, and it was dealt another setback when global demand weakened
during the 2008 credit crisis. This left GDP again back below levels seen in 1992.
But Japan public debt remains a daunting task for the Japanese government due to excessive borrowing, social welfare
spending with an aging society and lack of economic/industrial growth in recent years to contribute to the tax revenue.
The issue of export-oriented economy from the Japanese currency intervention causes the effect
of improving export but reduces import due to weaker Yen by the Japanese government.
Japan is among the top-three importers for agricultural products in the world next to the
European Union and United States in total volume for covering of its own domestic agricultural
consumption.[57] Japan is the worlds largest single national importer of fish and fishery products.
Growth slowed markedly in the late 1990s also termed the Lost Decade after the collapse of the
Japanese asset price bubble. As a consequence Japan ran massive budget deficits (added

JAPANs RESPONSE
About 84% of Japan's energy is imported from other countries.[96][97] Japan is the world's largest
liquefied natural gas importer, second largest coal importer, and third largest net oil importer.

BANKS
As asset values decline, those assets are less able to service debt, which in turn makes it more difficult for
borrowers to borrow, and reduces lending capacity. What follows, is a decrease in the flow of credit from
savers to spenders and a decline in economic activity.
At the level of large corporations, bank lending is not as significant in the United States as in many other
countries, as there are a larger number of accessible alternative sources of funds for businesses, like the
bond market. For small businesses, though, bank lending is often a crucial source of capital.
Business lending includes commercial mortgages (loans used to purchase buildings), equipment lending,
loans secured by accounts receivable and loans intended for expansion and other corporate purposes.
Traditionally, the residential construction industry has been a major borrower; using bank loans to acquire
land and pay for the construction of houses or apartments, and then repaying the loans when the dwellings
are completed or sold. Many banks effectively "double dip" in their lending to the housing market, lending
money to homebuyers as residential mortgages, and lending to developers and contractors engaged in
building new homes.
In many respects, most banking crises are quite similar. Banks make increasingly risky lending decisions
during economic expansions and fail to rein in their activities before a turn in the economy. Eventually
businesses struggle during the downturn, fail to repay their loans, a few banks collapse and then depositors
run to get their money out before their bank collapses. With the sudden outflow of money, banks curtain
their lending activity, the business cycle continues to worsen, more loans go bad and more banks go bust.

BANKS
If there is a constant theme throughout bank panics, it is in how banks lower their
lending standards and underwrite asset bubbles while regulators take a passive
stance.
Japan faced a lending bubble fueled by soaring real estate values and complicated
by long-standing ties between banks, major corporations and the government. Banks
were discouraged from "embarrassing" corporations by foreclosing on bad loans, and
could not adequately clear their balance sheets and recapitalize. Crippled by loans
carried on the books for far more than the underlying property was worth, the
Japanese banking sector underwent two decades of stagnation and the Japanese
economy largely followed.

INDIA Vs JAPAN
Parameter

India

Japan

 http://www.investopedia.com/articles/economics/08/japan-1990s-credit-crunch-liquidity-trap.asp-The
Lost Decade: Lessons From Japan's Real Estate Crisis
http://www.investopedia.com/ask/answers/07/central-banks.asHow do central banks inject
money into the economy?
http://www.investopedia.com/articles/04/050504.asp- How The U.S. Government
Formulates Monetary Policy

RESERVE BANK
A policy is referred to as contractionary if it reduces the size of the money supply or increases it only slowly, or
if it raises the interest rate. An expansionary policy increases the size of the money supply more rapidly, or
decreases the interest rate.
accommodative, if the interest rate set by the central monetary authority is intended to create economic
growth; neutral, if it is intended neither to create growth nor combat inflation; or tight if intended to reduce
inflation.
Monetary policy rests on the relationship between the rates of interest in an economy, that is the price at
which money can be borrowed, and the total supply of money. Monetary policy uses a variety of tools to
control one or both of these, to influence outcomes like economic growth, inflation, exchange rates with other
currencies and unemployment.
If an announcement about low-level inflation targets is made but not believed by private agents, wage-setting
will anticipate high-level inflation and so wages will be higher and inflation will rise. A high wage will increase a
consumer's demand (demand pull inflation) and a firm's costs (cost push inflation), so inflation rises.
For example, economist Richard Koo wrote that Japan's "Great Recession" that began in 1990 was a "balance
sheet recession." It was triggered by a collapse in land and stock prices, which caused Japanese firms to have
negative equity, meaning their assets were worth less than their liabilities. Despite zero interest rates and
expansion of the money supply to encourage borrowing, Japanese corporations in aggregate opted to pay
down their debts from their own business earnings rather than borrow to invest as firms typically do. Corporate
investment, a key demand component of GDP, fell enormously (22% of GDP) between 1990 and its peak
decline in 2003. Japanese firms overall became net savers after 1998, as opposed to borrowers. Koo argues
that it was massive fiscal stimulus (borrowing and spending by the government) that offset this decline and
enabled Japan to maintain its level of GDP. In his view, this avoided a U.S. type Great Depression, in which U.S.
GDP fell by 46%. He argued that monetary policy was ineffective because there was limited demand for funds
while firms paid down their liabilities. In a balance sheet recession, GDP declines by the amount of debt
repayment and un-borrowed individual savings, leaving government stimulus spending as the primary remedy.

RESERVE BANK
In the case of an open-market purchase of securities by the Fed, it is more realistic for the seller of the securities to
receive a check drawn on the Fed itself. When the seller deposits it in his or her bank, the bank is automatically
granted an increased reserve balance with the Fed. Thus, the new reserves can be used to support additional loans.
Through this process, the money supply increases.
RBI uses its tools to control the supply of money to help stabilize the economy. When the economy is slumping,
the Fed increases the supply of money to spur growth. Conversely, when inflation is threatening, the Fed reduces
the risk by shrinking the supply.
An unconventional monetary policy in which a central bank purchases government securities or other securities
from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the
money supply by flooding financial institutions with capital in an effort to promote increased lending and
liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not
involve the printing of new banknotes.
http://www.investopedia.com/articles/stocks/09/how-interest-rates-affect-markets.asp
To help keep inflation manageable, the Fed watches inflation indicators such as the Consumer Price Index (CPI)
and the Producer Price Index (PPI). When these indicators start to rise more than 2-3% a year, the Fed will raise
the federal funds rate to keep the rising prices under control. Because higher interest rates mean higher borrowing
costs, people will eventually start spending less. The demand for goods and services will then drop, which will
cause inflation to fall.
Rising or falling interest rates also affect consumer and business psychology. When interest rates are rising, both
businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop. On
the other hand, when interest rates have fallen significantly, consumers and businesses will increase spending,
causing stock prices to rise.

RESERVE BANK
Interest rates affect the economy by influencing stock and bond interest rates, consumer
and business spending, inflation, and recessions. However, it is important to understand
that there is generally a 12-month lag in the economy, meaning that it will take at least 12
months for the effects of any increase or decrease in interest rates to be felt.
Interest rates impact a company's operations too. Any increase in the interest rates that it
pays will raise its cost of capital. Therefore, a company has to work harder to generate
higher returns in a high interest environment. Otherwise, the bloated interest expense will
eat away at its profits. Lower profits, lower cash inflows and a higher required rate of return
for investors all translate into depressed fair value for the company's stock.
On the other hand, lowering interest rates also tends to increase inflation. This is a
negative side effect because the total supply of goods and services is essentially finite in
the short term - and with more dollars chasing that finite set of products, prices go up. If
inflation gets too high, then all sorts of unpleasant things happen to the economy.
Therefore, the trick with interest rate manipulation is not to overdo it and inadvertently
create spiraling inflation. This is easier said than done, but although this form of monetary
policy is imperfect, it's still better than no action at all.
If the Fed buys bonds in the open market, it increases the money supply in the economy by
swapping out bonds in exchange for cash to the general public. Conversely, if the Fed sells
bonds, it decreases the money supply by removing cash from the economy in exchange for
bonds. Therefore, OMO has a direct effect on money supply. OMO also affects interest rates
because if the Fed buys bonds, prices are pushed higher and interest rates decrease; if the
Fed sells bonds, it pushes prices down and rates increase.

RESERVE BANK
So, OMO has the same effect of lowering rates/increasing money supply or raising
rates/decreasing money supply as direct manipulation of interest rates. The real difference,
however, is that OMO is more of a fine-tuning tool because the size of the U.S. Treasury
bond market is utterly vast and OMO can apply to bonds of all maturities to affect money
supply.
Influencing Market Perceptions
The final tool used by the Fed to affect markets an influence on market perceptions. This
tool is a bit more complicated because it rests on the concept of influencing investors'
perceptions, which is not an easy task given the transparency of our economy. Practically
speaking, this encompasses any sort of public announcement from the Fed regarding the
economy.
For example, the Fed may say the economy is growing too quickly and it is worried about
inflation. Logically, if the Fed is being truthful, this would mean an interest rate increase is
forthcoming to cool the economy. Assuming the market believes this statement from the
Fed, bondholders will sell their bonds before rates increased and they experience losses. As
investors sold bonds, prices would go down and interest rates would rise. This in effect
would accomplish the Fed's goal of raising interest rates to cool the economy, but without
actually having to do anything.

Inflation
http://www.investopedia.com/university/inflation/inflation1.asp
Demand-Pull Inflation - This theory can be summarized as "too much money chasing too few
goods". In other words, if demand is growing faster than supply, prices will increase. This
usually occurs in growing economies.
Cost-Push Inflation - When companies' costs go up, they need to increase prices to maintain
their profit margins. Increased costs can include things such as wages, taxes, or increased
costs of imports.
Contrary to popular belief, excessive economic growth can in fact be very detrimental. At one
extreme, an economy that is growing too fast can experience hyperinflation, resulting in the
problems we mentioned earlier. At the other extreme, an economy with no inflation has
essentially stagnated. The right level of economic growth, and thus inflation, is somewhere in
the middle. It's the Fed's job to maintain that delicate balance. A tightening, or rate increase,
attempts to head off future inflation. An easing, or rate decrease, aims to spur on economic
growth.
Inflation usually maintains a positive relationship with economic growth. When productivity is
high and the economy is growing at a healthy clip, prices rise to match income growth and
economic growth.
When inflation takes off at a pace not in sync with economic growth, hyperinflation occurs.
Hyperinflation is vexing in terms of monetary policy. Methods effective for reducing inflation,
such as raising interest rates and constricting the money supply by selling Treasury bonds (Tbonds), tend to slow economic growth and can even throw the economy into a recession.

Inflation
http://www.investopedia.com/ask/answers/202.asp
Deflation is a macroeconomic condition where a country experiences lowering prices. This is the
opposite of inflation which is characterized by rising prices (do not confuse deflation with
disinflation, which is simply a slowing of inflation). To many economists, deflation is more serious
than inflation because deflation is more difficult to control. Let's take a look at the different
effects of deflation.
One would think that people would be happier if prices were to go down. Everything becomes
cheaper, and the money that we have seems to go a little further than it used to. However, when
this effect drags on for too long, companies' profits begin to decline. Economic conditions (i.e.
excess supply) force companies to sell their products for even cheaper and subsequently cut
back on production costs, reduce employee wages, lay off workers or even close production
facilities. At this point, unemployment will increase, the economy cannot expand and people
aren't spending their money because their economic future seems uncertain.
Now that you know the effects of deflation, you can imagine why it is considered worse than
inflation: in times of inflation, governments curb spending and encourage saving by increasing
interest rates, but as governments will do the opposite to encourage spending during deflation,
they cannot lower the nominal interest rates to a negative level, or below zero.
.An economic cycle characterized by rapid expansion followed by a contraction.

Bubble
Bubbles form in economies, securities, stock markets and business sectors because of a change
in the way players conduct business. This can be a real change, as occurred in the bubble
economy of Japan in the 1980s when banks were partially deregulated, or a paradigm shift, as
happened during the dotcom boom in the late '90s and early 2000s. During the boom people
bought tech stocks at high prices, believing they could sell them at a higher price until
confidence was lost and a large market correction, or crash, occurs. Bubbles in equities markets
and economies cause resources to be transferred to areas of rapid growth. At the end of a
bubble, resources are moved again, causing prices to deflate. Thus, there is little long-term
return on those assets.

INDIA
India hasn't looked back since 1991. According to World Bank data, the nation experienced an
average growth rate of 5.8% during the 1990s, 6.9% during the 2000s and 7.3% from 20102014. The size of Indias economy currently stands at $2 trillion. It is the worlds tenth largest
economy in terms of nominal gross domestic product and the third largest economy in the world
in terms of purchasing power parity.
The economys strength lies in a limited dependence on exports, high saving rates, favorable
demographics, and a rising middle class. In terms of produce, Indias is the among the world's
largest producers of tea, milk, pulses, cashew, spices, jute, rice, wheat, fruits and vegetables,
sugarcane, oilseeds and cotton. The country accounts for 2.07% of the global agricultural trade.
There is immense potential for improvement and growth in the agricultural sector and initiatives
by the government to boost long-term investment should help realize those in the coming years
http://
www.investopedia.com/articles/investing/082515/emerging-markets-india-next-superstar.asp
http://www.investopedia.com/articles/investing/060214/should-india-be-investors-radars.asp
http://www.investopedia.com/articles/investing/121714/top-indicators-indias-economy.asp
http://
www.investopedia.com/stock-analysis/2010/indias-economic-boom-inxx-pin-epi-scin0823.aspx
http://www.investopedia.com/ask/answers/090115/japan-emerging-market-economy.asp
http://
www.investopedia.com/stock-analysis/2011/its-time-to-invest-in-india-hdb-wit-rdy-tcl1020.aspx

Japan
http://www.investopedia.com/ask/answers/090115/japan-emerging-market-economy.asp
http://
www.investopedia.com/stock-analysis/2011/its-time-to-invest-in-india-hdb-wit-rdy-tcl1020.aspx
http://www.jetro.go.jp/en/invest/whyjapan/
http://www.usatoday.com/story/money/markets/2014/12/22/motley-fool-investing-in-japan/20639
859
/
http://www.wallstreetdaily.com/2015/04/03/japan-economy-yen/
http://moneyweek.com/japan-nikkei-still-time-to-invest-in-japanese-stocks/
http://www.morningstar.co.uk/uk/news/136345/3-reasons-to-invest-in-japan.aspx
http://www.globalsmes.org/news/index.php?func=detail&detailid=530&catalog=25&lan=en
http://www.nationmaster.com/country-info/compare/India/Japan/Economy
http://www.investopedia.com/articles/economics/08/japan-1990s-credit-crunch-liquidity-trap.asp
http://country-facts.findthedata.com/compare/82-122/Japan-vs-India
http://www.investopedia.com/articles/economics/08/japan-1990s-credit-crunch-liquidity-trap.asp