1999 Reports

Japan's challenge for economic revitalization

Fukukawa, Shinji

Since the "bubble economy" burst around 1990, Japan has been struggling with a prolonged recession and a deteriorating financial system. The average rate of economic growth from fiscal year 1991 to 1998 remained as low as 0.9% and, especially in the last two years, the growth rate consecutively turned negative to -0.4% in FY 1997 and -2.2% in FY 1998. An unemployment rate has risen to 4.4%, which is historically high for Japan and higher than that of the United States. Three big banks and one traditional security firm collapsed over the last 1-2 years. The Japanese are overwhelmed by "pessimism," and questions concerning Japan's growth potential have emerged in foreign countries. According to a 1998 survey by the International Institute of Management Development (IMD) in Lausanne on global performance, Japan's rank has fallen from No. 1 in 1992 to No. 18. Since the collapse of the "bubble economy," the government has implemented nine special stimulus packages that amounted to107 trillion yen. The Bank of Japan has maintained the official discount rate at the historically low level of 0.5% for the last several years. Why has the Japanese economy become so weak and less reactive to those Keynesian measures?