The root causes of the Lost 30 Years are said to be the transformation of Japanese companies from a “net-investing sector” to a “net-saving sector” and the deterioration of corporate balance sheets after the bubble collapse.
The article identifies the transformation of Japan’s corporate sector from a “net-investing sector” to a “net-saving sector” as the root cause of the country’s prolonged economic stagnation. It explains that although nominal GDP has expanded since the COVID-19 pandemic, companies have continued to prioritise saving and refrain from investment.
Japan’s corporate saving rate has remained positive since the 1990s. Companies once supported growth through excess investment, but from the latter half of the 1990s onward, “excess saving,” in the form of growing retained earnings, is said to have become the norm. This is cited as the basis for the shift to a “net-saving sector.”
The bubble collapse is cited as the trigger for this transformation. Following the expansion and collapse of asset prices from the latter half of the 1980s, companies’ balance sheets were impaired, making it more difficult to obtain financing and leaving them unable to secure funds for investment, according to the article.
The deterioration in balance sheets and the impact of the financial crisis are said to have led companies to prioritise debt repayment over new investment, resulting in a prolonged period of rising corporate savings. The article says the 1997-1998 financial crisis further entrenched this situation.