Whither Japan's Economy?

The Japanese economy entered a long recession in spring 1997. Its economic growth has been much lower than in the US and the EU despite large fiscal stimulus packages, a monetary policy which has brought interest rates to zero since 1999, injections of public money to recapitalize banks, and programs of liberalization and deregulation. How could all these policies have failed to bring the Japanese economy back on a sustainable growth path? This paper argues that the failure of Japan's efforts to restore a sound economic environment is the result of having deliberately chosen inappropriate and inadequate monetary and fiscal instruments to tackle the macroeconomic and structural problems that have burdened the Japanese economy since the burst of the financial bubble at the beginning of the 90s. These choices were deliberate, since the "right" policies (in primis the resolution of the banking crisis) presented unbearable political costs, not only for the ruling parties, but also for the bureaucratic and business elites. The misfortunes of the Japanese economy during the long recession not only allow us to draw important economic policy lessons, but also stimulate reflections on the disruptive role on economic policies caused by powerful vested interests when an economy needs broad and deep structural changes. The final part of the paper focuses on ways to tackle Japan's banking crisis. In particular, it explores the Scandinavian solution, which, mutatis mutandis, might serve Japanese policy-makers well.

Research Collaboration in Japan

This paper was prepared for delivery at the annual meeting of the Association of Asian Studies, Boston, April 11, 1987. A preliminary version was delivered to the annual meeting of the American Association for the Advancement of Science, Chicago, February 16, 1987.

Supplier Relations in Japan and the United States

This working paper was originally printed in the Working Paper Series of the MIT International Motor Vehicle Program

Managing A Changing Relationship: China's Japan Policy in the 1990s

This paper was prepared for the conference on "China into the twenty-first century: Strategic partner and...or peer competitor"