How Japan went from MIRACLE to DISASTER? | Economic Case study

Japan's household spending rose for the first time in 3 years in 2025. >> Food has gotten [music] expensive, so I tried to look for the most low cost places. I like this shopping street because I can compare prices. >> Ladies and gentlemen, Japan is facing a horrific economic crisis. The Japanese economy is facing a peculiar problem. >> It's now the world's most indebted country with a debt to GDP ratio 248%. >> We have just seen the biggest one-day move on the NK225 since 1987. >> A combination of deflation, rising debt has suppressed growth in Japan. In 2025, [music] 10,000 companies went bankrupt in Japan. And out of these 10,000 companies, 300 companies shut down, not because they ran out of money, but because they ran out of humans. In Japan, over a fifth of the population are now over 70. From the crowded streets of Tokyo, you'd never guess that Japan's population problem isn't too many people, it's too few. Due to the labor shortage, the factory faced the real possibility of shutting down. >> At the same time, Japan is shutting down 450 schools per year because there are no children to attend. This is the kind of population and economic collapse that has never been seen before in modern history. But you know what? In the 1980s, the same Japan was growing so fast that the average income of a Japanese citizen grew from $500 in 1960s to $25,000 in the 1980s. And even though Japan was 26 times smaller than America, Japanese land was worth four times more than the entire land of United States. In fact, Japan was growing so fast that they went from a poor country to almost beating the GDP of United States of America. While US was at 7.6 6 trillion, Japan was at $5.5 trillion. The Japanese now enjoy the highest standard of living in Asia. Japan had established itself as a global manufacturing powerhouse. >> The economy [music] was growing so fast that it looked like it was about to overtake the US as the world's biggest. So the question is when Japan was growing so fast suddenly how did they start stagnating? Why is the Japanese economy struggling today and most importantly what are the lessons that Indian needs to learn from the stagnation and struggle of Japan? [music] >> Facility in Tokyo distributes free secondhand clothes. [music] More parents under financial stress. The data also shows a harsh reality. People are [music] technically spending more. They're struggling to keep up with rising costs. Before we dive in, let's take a moment to thank ODO. Imagine a small manufacturing company in Pune that consistently juggles between multiple software tools like one for inventory, another for accounting, and another for sales. 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And ODO's user-friendly interface ensures that everyone from a seasoned manager to a first-time user can adapt to the platform effortlessly. So as your business grows, ODO grows with you. It's completely scalable and it will allow you to add new applications as your needs evolve. Automation tools streamline repetitive tasks and give you more time to focus on what truly matters, which is scaling your business. The best part, your first ODO application is completely free for life with unlimited hosting and support included. So if you want to grow your business in a flash, check out the link in the description and start your journey with ODO today. This is a story that dates back to 1949 when the entire world was slowly drawing into another world war which started with a clash of America and Soviet Union. During this time, Soviet Union supported Mao Zidong to take over China. They also supported North Korea to invade South Korea. And sitting right in the middle of this chaos was Japan. Back in the 1940s, Japan got defeated in World War II. 67 major cities of Japan had been bombed. Millions of people were starving and the Japanese economy was dying. The city was turned into a desert. Everything is burnt, smashed, annihilated. [music] It's an apocalypse. Women, children, and old people died more slowly and silently, badly burned or irradiated. Now, America was terrified. Why? Because if a devastated and desperate Japan turned towards communism, the Soviet Union would gain a powerful ally in Asia. So, China, Japan, and North Korea, all three countries would have fallen for communism. And this is when America realized that a hungry man doesn't care about democracy. A hungry man cares about bread. So, if the Soviet Union offered bread and the US offered freedom, the hungry Japanese would always choose bread over freedom. In fact, Japan back then already had 6.5 million soldiers who didn't have a job. So, America was scared that if a communist party promised them a meal and a purpose, the Soviets could have an armed revolution in Japan within weeks. And if the Soviet Union took control of Japan, the Pacific Ocean would have become a Soviet lake and the threat to the United States would arrive at the beaches of California. So, Uncle Sam had no choice but to take control of Japan. This is [music] when America stopped treating Japan like a prisoner and decided to turn Japan into a capitalistic miracle. Why? Because America needed a case study. They wanted to tell the world, "Look, [music] if you side with America, you will become rich. And if you side with the Soviets, you will starve in war." So, America did three things for Japan. Number one, they pumped billions of dollars into Japanese factories and saved companies like Toyota from bankruptcy. Number two, [music] they handed over blueprints for steel and electronics so that Japanese factories could start producing steel and electronics at scale. And lastly, they let Japan sell unlimited goods to US consumers. And you know what? [music] This was such a miraculous move that in just 20 years, Japan grew so fast that Japan beat Germany, UK, France to become the third largest economy of the world. By 1980s, while Japanese cars captured 23% of US market, American companies were struggling. In fact, Chrysler was so close to bankruptcy that it had to practically beg the US government for a $ 1.5 billion bailout. In the 1970s, US held 60% of the global semiconductor market. But by 1989, Japan overtook US and held [music] 51% of the market while US was down to 35%. In the 1980s, while six out of the top 10 companies in the world by market cap for Japanese, American companies were [music] laying off thousands of workers just to survive. Now, think about this from the American perspective. They saw Japanese factories stealing American jobs. They saw Toyota crush Ford and General Motors in their own country. And the situation was so bad that auto workers were literally smashing Japanese cars with sledgehammers and that too on live television. >> The car you're looking at a 78 Toyota Corolla. >> How many hits on this car? >> It's a dollar a hit. >> This is when the politicians of America realized that Japan had become a threat to the American economy. So in 1985, America told Japan to sign something called the Plaza Accord. And this is where the Japanese economy got paralyzed. This accord devalued the dollar against yen. As simple as that. And look at this. In 1985, $1 US was worth 260 yen. But in 1987, suddenly $1 was equal to just 130 yen. So suddenly a Toyota car that would have cost $10,000 in America now had to be sold for $20,000 just to make the same profit in yen. So Japan's cost advantage vanished overnight and their exports started collapsing. Now to prevent this collapse from happening, Japan did two things. Number one, to survive, Japanese giants like Mitsubishi and Toyota began moving their factories out of Japan into Southeast Asia and even the United States. So highp paying manufacturing jobs started to disappear from Japan. And secondly, the Japanese banks reduced interest rates from 5% to 2.5%. So that businessmen could borrow and invest that money into better technology and reduce the cost of Japanese products. And this is where the disaster started. You know what the problem was? Instead of investing this money into technology, people and businesses started pumping this money into the Japanese stock market, Japanese land market, and Japanese real estate market. And this is where a dangerous Japanese bubble started. >> Japan was in the throws of [music] an economic bubble. >> To safeguard their profits, it was in the bank's interest that land prices should continue up >> and the Nikki stock index [music] tripled in value. >> Look at this. In the early 1980s, the Nikay 225 shot up from 6,000 points to 38,915 points in 1989. So, the stock market was practically delivering 300% to 500% returns to its investors. And when this happened, you know what the companies did? Companies like Sony, Sano, and Toyota, they started trading the stock markets instead of investing in great products to make money in the export market. In fact, in the late 1980s, nearly 30% of Toyota's pre-tax profits came from trading and not car sales. Similarly, Nissan, Sony, and 327 other companies had massive profits from such practices like trading and not their core product sales. In fact, many companies went to the bank and said, "Look, my $100 million stock is now worth $500 million, so you got to give me a loan of $400 million." And then these $400 million were invested into land and real estate. And this is what gave rise to another bubble. This was the land and real estate bubble of Japan. And just like stocks again, [music] even land prices in Japan started to shoot up by 200 to 300%. In fact, by 1989, Japanese land became so expensive that the total value of all land in Japan was estimated to be four times greater than all land in the United States. But one fine day, just like every other bubble, the Japanese government realized that they had messed up. So suddenly the interest rates of the banks were increased from 2.5% to 6%. And this is when all hell broke loose. And think about this. These companies had borrowed billions of dollars from the bank. They invested that money in the market to make a profit. And this money was then used to repay the banks and take out more loans. But now the problem was this cycle broke apart. Now these companies had a lot of land and stock. But they lost 50 to 70% of value. And now these companies had billions of dollars in debt, but no cash or asset to pay it back. In fact, when the stock market came crashing down, Nissan had $20 billion in debt and no money to pay. Similarly, in 1989, Sony bought Colombia Pictures for $4.8 billion because the money was cheap to borrow. It was the largest Japanese acquisition in American history. 1989, a Japanese corporation's desire to purchase a Hollywood movie [music] studio, turning Japanese outsiders against American corporate titan. Sony makes a move on Colombia. Two big deals that break all the rules. But when the Japanese economy collapsed in 1990, Sony was stuck. And by 1994, they had to write off $2.7 billion in losses. One of the biggest financial disasters in movie history. And lastly, Toshiba was the king of memory chips in the world. They were so good that American companies like Intel quit the memory business because Toshiba was excellent at it. But you know what? When the bubble came bursting, Toshiba was paralyzed by debt. And this is when a South Korean company called Samsung poured all the money in the world into aggressive lowcost production and eventually dethroned Toshiba to become the king of the market. And overall, this crash was so bad for Japan that it took their stock market 34 years to recover. On top of that, in 1995, Japan's nominal GDP reached $5.5 trillion. But instead of growing quickly, the economy shrank by $1 trillion in the next 30 years. And lastly, the average income in Japan has not risen since 1995. So today, young Japanese people are technically poorer than their parents were in 1989. And this brings us to the final chapter. When the Japanese economy was failing, what did Japan do? Well, this is where the Japanese government made another mistake. They panicked and instead of letting companies go bankrupt like America did in 2008, the Japanese government tried to keep these companies alive just to avoid a complete collapse. So, if company A owed the bank $100 million but couldn't pay it back, instead of declaring them bankrupt, the bank gave them another loan of $5 million just to pay the interest on the first loan. So, the company wasn't technically bankrupt, but it was not alive either. It was a zombie company existed only to pay interest. And you know what? By the early 2000s, it was estimated that 30%, I repeat, 30% of all Japanese firms were zombies. These companies did not hire new people. They didn't buy new machines and they didn't innovate at all. They just existed. And this zombie economy cursed Japan in three tragic [music] ways. Firstly, Japan entered an innovation black hole. While the US was funding Tesla and Google type companies, Japan was funding dying department stores. Secondly, zombie companies sold their products at rock bottom prices just to get cash. So if a zombie company made LCDs, they would make it at $400 and sell it for, let's say, $410 just to get cash. But due to this terrible pricing, a new company could not sell LCDs at $500. So no price increase led to no profit increase. No profit increase led to no wage increase. And no wage increase further stagnated consumption. And lastly, Japan got cursed with the labor shortage paradox. In most countries, if you graduate during a recession and you can't find a job, you work at a cafe for 2 years, gain some skills, and then apply to a big company when the market recovers. But when the Japanese bubble burst to save money, companies simply stopped hiring new graduates for a decade. For a decade. So that entire generation only worked at 7-Eleven stores to make money. But now those young graduates from 1995 are 50 years old. And since they spent 25 years working at 7-Eleven, they never learned highlevel skills like management, coding or strategy. So they're still living off their parents' pension. Yes, 50 year olds are still living on their parents' pensions. And today, while the Japanese companies are desperate for experienced leaders, they are not able to hire these 50-year-olds because they lack the experience. So this entire generation was wasted. And since a man without a permanent job was considered unsafe for marriage, a major chunk of the population either didn't get married or didn't have children, which again contributed to the population collapse. In fact, in 2015, nearly one in every four men in Japan had remained [music] unmarried until the age of 50. And back then in 1970s, Japan used to have 2 million births per year. And demographers said that if the birth rate in Japan fell below 800,000, the economy would become unsustainable. But now the birth rates in Japan have fallen below 680,000 births a year. That is how Japan went from being an economic wreck to an economic disaster. And this story of Japan teaches us three very very important lessons. Number one, every nation must allow inefficient debtridden companies to fail through robust bankruptcy [music] laws to free up capital for high growth startups. India by the way was stuck with this problem till 2016. And in 2016 we introduced the Indian bankruptcy code which by the way now has also become inefficient. Number two never be overdependent on a single trading partner. We saw that with both Japan and Venezuela. And lastly we all need to remember that a healthy population is a blessing but currently it is turning into a curse for India. Today more than 50% of graduates in India are unemployable. So just like Japan, we are giving rise to a dut generation that will then choke our economy into an irreversible [music] titch and I just hope the politicians of India wake up and do something about it. That is the story of Japan and I [music] just hope you learned something valuable from this case study. That's all from my side for today guys. If you learned something valuable, please make sure to hit the like button in order to make YouTube happy. And [snorts] for more such insightful business and political case studies, [music] please subscribe to our channel. Thank you so much for watching. I will see you in the next one. Bye-bye. So [music] >> [music]