Lessons Drawn from Our Neighbor
Qizheng Mao
Department of Statistics and Analysis, People's Bank of China, Beijing, China

Japan's economy has experienced substantial fluctuations since the latter half of the 1980s. Due to the rapid appreciation of yen against dollar, to avoid of recession of economy, Bank of Japan conducted easy monetary policy from 1986 to 1989, during which period we saw a sizable increase in money supply, excess of credit lending, and a rapid and large surge in asset prices. One important reason of Japan's experience during this period is the speedy inflow of foreign capital. The property price and stock index were pushed very high. From 1989, to fight with asset bubble, Bank of Japan tightened monetary policy rapidly. The bubble burst after the tightening. The Nikkei 225 peaked at the end of 1989 and fell sharply from 1990 and property bubble burst from 1991. Due to the drop of asset price, the speculative capital out flew fast, which pushed the drop further. The real economy was adversely affected by the aftermath of the bubble and growth rates during the 1990s have mostly been near zero.

Some people claim that China now looks like Japan in the “pre-burst” period. China has huge trade surplus and fast growing credit recently, which is similar to Japan's situation in the 1980s. However, there are some important differences between these two economies. With a discussion on the similarities and differences between current China and late 1980s' Japan, this paper attempts to figure out whether there are Japanese-style bubbles inflating in the Chinese economy.

Keywords: Bubble; Policy

Biography: Mr. MAO Qizheng now works in the Department of Statistics and Analysis, People's Bank of China (PBoC). He received his Master degree in financial engineering from City University of HongKong and Master degree in computer science from Nanjing University. The main job of the division he works for is to design statistical methodology and standardization framework in China, and to cooperate with colleagues from the financial statistics community around the world.