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In the beginning of 2002, Japan entered its longest economic recovery phase after WWII, with supporting domestic factors such as the resolve of excess capacity and employment, and with continuing global accelerated economic growth. However, the high global economic growth that depended on the overspending and huge current account deficit of the U.S., eventually transformed into a bubble economy, and burst. Also benefitting from the bubble, Japan’s economy was unable to escape the adverse effects of the collapse, and is now in a state of what must be termed shock, requiring serious adjustment.
The stagnant personal consumption in the U.S. that is the shocking aftermath of the global bubble burst will remain for a while, but the environment surrounding Japan’s economy will remain grim even longer. World economic growth has dulled, and companies accustomed to relying on exports will find it difficult to regain the thriving business experienced in the mid-2000s. Furthermore, facing a low birthrate, aging population and overall population decrease, the economic activities of the household sector including personal consumption will likely drop a level to an even slower pace. The government, entrusted to establish a safe and secure society, will be unable to perform such role fully, as it faces the deteriorating fiscal situation.
Japan’s economy has encountered enormous problems. First, Japan must actively carry out the job of building a new global trade and financial framework for the post-bubble economy. Additionally, Japan needs to review its growth strategy, taking into consideration the decelerating global economy. Furthermore, Japan must domestically reconsider the relationship between corporations and individuals. Economic growth has disconnected from individual wealth, and households are falling into poverty. At the same time, it is an essential challenge to reconfirm the function of the government in providing for a safe, secure society, and accordingly, to form a consensus on taxes and other burdens the people bear. On top of all this, Japan must move forward in establishing a new frontier for economic growth.