Big recessions in Japan

 

Background-Information

 

The recession of 1973 not only concerned Japan. It was a huge oil-crisis caused by the israeli-arab-conflict that started in 1967 when Israel conquered some parts of the arabian countries. To defend themselves the arabian countries reduced their supply of mineral oil by 5 percent to pressure Israel to give back the garrisoned territories. At the same time they punished all states that were supporting Isreael with a suspension of deliveries. The increase of the oil price was on the one hand caused by the shortage of supply but at the other hand because the arabian countries tried to receive more money to pay the ascending costs for goods of the industrial countries because of the inflation of the dollar.

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Impacts on Japan

 

After a strong economic growth of Japan's economy the “first oil shock” provoked a recession in 1973. Japan was hit the most of the oil shock comparing with other countries because it had a strong dependence of the Israelien oil. Impacts of the high oil prices were on one side the decreasing propensity to consume and on the other side it had negative effects on the labour market (dropped down nearly to half) and the corporate profit. The companies also had to rise their fix costs because of the lack of production. In trying to keep the investment rate steady the state decided to lower the interest rate.

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Japan suffered the highest increase of consumer prices over 18%. One reason was the raise of prices of electricity which damaged Japan’s competitiveness. This inflation made the cost of imported goods so high that Japan falled into a trade deficit of $ 6 billion.

After this oil-shock Japan recognised  that the dependence of oil is a question of national security. As a result they started researching in saving raw materials, energy and the substitution of products.

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This video explains the oil crisis in 1973.

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