Current affairs

Japan's post-bubble economy and Indonesia's post-currency crisis



Japan's deflationary recession after the bursting of the bubble economy

When I entered university in 1991, at the end of the bubble economy, land and stock prices were exploding, Mitsubishi Estate had bought the Rockefeller Center Building, a symbol of America, and the women of the one-length body-con were dancing at Juliana Tokyo in the waterfront bay area, waving their fans.

At a club party, we used to take a taxi to the glamorous discos and karaoke in Roppongi almost every night, thanks to generous treats and donations from alumni who had worked for TV stations and city banks.

When I was in junior high school, trade friction between Japan and the U.S. was intensifying due to the export offensive of made-in-Japan products against the backdrop of the weak yen, and shocking images of Japan-bashing were frequently shown on the news.

In order to solve the twin deficits of trade and fiscal deficits that the U.S. was running at the time, the Plaza Accord of 1985 led to an immediate appreciation of the yen and a weakening of the dollar, which resulted in a slump in exports, which had been the driving force of the Japanese economy.

The money that flowed into the market went to stocks and real estate investment, and land rolls were rampant, and just as Indonesians now boast that land prices will never go down, Japanese at that time believed in the absolute land myth that land prices will continue to rise, and the Nikkei Stock Average hit a record high every day.

The Bank of Japan and the government raised interest rates, restricted lending by banks for real estate investment, and imposed a land price tax in order to suppress the rise in asset prices that could not be explained by the growth of the real economy, causing real estate prices to plummet.

In post-bubble Japan, the term "20 years lost due to deflationary recession" has taken hold, and in order to get out of deflation, the Bank of Japan's Haruhiko Kuroda implemented an extra-dimensional quantitative and qualitative easing of 300 trillion yen in 2014.

The company's performance improved and its stock price rose due to the inflow of funds into the market through the purchase of Japanese government bonds by the Bank of Japan, also known as the Kuroda Bazooka.

However, when companies experienced a bubble economy, capital investment and wage increases were curtailed, resulting in surplus funds being held back in the retained earnings section of the company's balance sheet.

Indonesia's domestic demand-dependent economy in the wake of the currency crisis

Immediately after I arrived in Indonesia in October 1997, Yamaichi Securities, one of Japan's four major securities companies, and Taku Gin (Hokkaido Takushoku Bank), the smallest of the capital banks, went bankrupt one after another.

In Asia as well, hedge funds led by George Soros conducted short selling of currencies (short credit selling), and the Indonesian rupiah continued to fall against the dollar.

At that time, the cost of oil imports had risen, the price of petrol in the country, the nine necessities of life, Sumbaco (Sembilan Bahan Pokok), there was a sense that the price of the first taxi ride was going up with every ride, criticism of the Suharto regime, which had been a taboo for many years, was becoming more public, and student demonstrations became more intense by the day.

With foreign currency reserves running out and the rupiah unable to defend itself against a plummeting currency, interest rates just kept rising in order to collect liquid cash in the country.

It was only when I checked the amount of interest printed on the next month's bankbook with half a doubt that I realized how important it is to be aware of interest rates when living in Indonesia.

Subsequently, in 2016, the obligation to denominate domestic transactions in rupiahs and the obligation to hedge foreign currency borrowings with derivative assets was regulated, effectively limiting foreign currency borrowings by private companies from abroad.

With the election of President Yudhoyono (SBY) in the first direct democratic election in 2004, Indonesia's economy was attracting worldwide attention for its large young labor force, the attractiveness of its abundant natural and mineral resources, and its potential.

At the time, I thought that Indonesia would soon become as booming as the Japanese bubble economy, but since the impact of the Lehman shock in 2008, the economy has cooled down all at once, and even though the economic growth rate has been steady, exports have been sluggish and domestic industries have not been fostered, so the economy has completely settled down to depend on domestic demand.

By the way, I took advantage of the online trading boom before the Lehman shock and put a lot of money into Indonesian stocks and mutual funds (Raksa Dana), but the brokerage firm went bankrupt and the amount of money deposited in my account went flying and I joined a class-action lawsuit.

Moderate economic growth in Indonesia

The term "moderate economic growth" is often used to describe the Indonesian economy, but this is due to the fact that the economic structure is dependent on domestic demand, which is supported by the growth of domestic demand as the consumer population grows because of weak export competitiveness.

The trade deficit even in Indonesia, which has overcome the financial crisis and has stabilized at the current low rupiah level, is the same as the trade deficit that persists despite the fact that Japan implemented cross-dimensional quantitative and qualitative easing as part of its Abenomics program to induce a weaker yen in order to break out of deflation after the bursting of the bubble economy.

  • Improved product competitiveness in other countries has led to lower demand
  • Demand has fallen due to the recession in the importing countries.
  • Reduced competitiveness due to rising costs caused by rising wages in the home country

In other words, there is domestic demand that requires that much importation, and since domestic production cannot meet the added value to cover this domestic demand, imports will increase.

Indonesia's nominal GDP per capita has surpassed $3,500 and is projected to exceed $5,000 by 2022, as demand shifts from motorcycles to cars.


An economy driven by domestic demand can only operate as long as the domestic consumer population increases and new demand is naturally created, and an economy driven by domestic demand when the consumer population does not increase (or decrease) is the same as devaluing domestic assets and letting them flow outward.

The greatest strength of Indonesia's domestic demand-based economy lies in the fact that its ever-growing consumer population continues to create new demand, and while Japan's domestic demand-based economy is shrinking in size due to the continued decline in the consumer population, the size of the economy is supported by interest rates generated by overseas assets.

With the recent trade friction between the U.S. and China and the political crisis in Hong Kong, there is no doubt that China's relative position in the global economy will become stronger and stronger, and whether we like it or not, Indonesia and Japan will be forced to focus more and more on their relationship with China, which has huge domestic demand, both politically and economically.