Research On The Cause Of Deflation In Japan

Japan’s economy has created a miracle in the history of the development of world economy. However, Japan’s sudden reversal of economic let people give deep sigh. Since Japan’s bubble economy burst in the early1990s, Japan’s economy has been stagnant, and in a long period of deflation. About the causes of long-term deflation phenomenon, there are debates in the academia. By the research on causes of deflation, we can be deepened understanding about deflation in theory. In the transition from the high speed development to a stable development, Problems and experiences that Japan encountered, can become our precious resources, and has reference significance for China’s development.Based on the demand shock for clues, the paper reviews Japan’s economy and monetary policy during the period from1980s to now. By summarizing the academic debates of causes of Japan’s deflation, the causes are divided into the monetary and non-monetary factors. And the non-monetary factors include financial system credit contraction, external demand shock, and the real economy structural factors. Beyond the debates of supply side and demand side, this paper argues that the supply side and demand side are interacting. Total factor productivity is in line with the economic cycle, this suggests that the demand side has an impact on the supply side; In addition, the productive shocks have an impact on private consumption and private investment by household income, business income or asset prices.VAR model empirical analysis adopts two stage, and uses data from the1980s to the present, the first phase only includes six variables of aggregate demand. On the basis of the previous stage, the second phase includes the monetary factors, including interest rate, the monetary base and the exchange rate. Then by comparing negative residual in two phases, we can find the contribution of monetary factor. Finally, the empirical conclusion is that in the initial shock, tightening of monetary policy is the main reason. And after a long period of deflation, the currency factor is not the main reason. In this paper, Japan’s deflation can be divided into two stages. Cut-off point is distressed debt basic solved the financial sector. The first phase from the Japanese bubble economy burst to the end of2003, the financial system and the corporate sector is in the balance sheet repair, the financial system’s credit crisis and a corporate sector initiative to liabilities to minimize the cause deflation; the second phase begins with2004, the main causes.of deflation is the old system of the real economy and economic structural problems.