Section 6. Strengthening Development and Sales Efforts in the Japanese Market

Item 1. Structural Changes in the Japanese Automotive Market

Recession following the collapse of the bubble economy

In the 1990s, the bubble economy in Japan burst, triggering financial uncertainty, the bankruptcy of many corporations including major financial institutions, a worsening employment situation, and political turmoil, resulting in a long-lasting recession nationwide. Subsequently, the domestic new-car market (including minivehicles), which had stagnated following the collapse of the bubble economy, began to recover and continued to grow year-over-year during a three-year period beginning in 1994. However, triggered by the April 1997 increase in the consumption tax from three percent to five percent, overall consumption cooled rapidly, causing the new car market to begin shrinking again that year.

The increase in the consumption tax pushed the recovering Japanese economy into serious retreat once again, and signs of deflation accompanied by falling prices began to appear. In February 1999, the Bank of Japan had adopted a zero interest rate policy in an effort to pull the Japanese economy out of deflation, but suspended this policy in August 2000. Worsened by the collapse of the IT bubble, which occurred around the same time, deflation continued until 2002.

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