Japan's Deep Recession and Protracted Recovery

Patrick, Hugh T.

This paper discusses Japan's deep recession from summer 2008 to spring 2009 and the recovery as of fall 2009, considers near-term and longer-term prospects, and briefly addresses Japan's international economic relations. The August 2009 Diet Lower House election victory by the opposition Democratic Party of Japan (DPJ) heralds a major change in Japanese politics, ending long"term control by the Liberal Democratic Party. While the DPJ proposed significant changes in economic policy in its election campaign, it remains too early to determine just what its economic policies will be in Japan. Japan has a major problem, not just cyclically but structurally: a combination of inadequate domestic demand and its unbalanced composition -- notably a high share of business investment in only slowly growing GDP and a low share of consumption yet little household saving. A further major concern is the persistence of mild deflation for the foreseeable future. Both suggest the need for significant further macroeconomic stimulus to jump-start economic recovery in order to generate full employment sustained growth.

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Academic Units
Center on Japanese Economy and Business
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Center on Japanese Economy and Business Working Papers, 286
Published Here
February 14, 2011