Problems and prescriptions for the Japanese economy: An overview

Ito, Takatoshi; Patrick, Hugh T.

The bursting of the asset and real estate market bubbles in 1990 and 1991 marked the conclusion of Japan's momentous postwar economic growth and ushered in a new period of economic stagnation and malaise. This paper serves as an overview of the forthcoming 11 chapter publication: Reviving Japan's Economy: Problems and Prescriptions, co-edited by Takatoshi Ito, Hugh Patrick, and David Weinstein. Here we provide a brief summary of the stagnation and offer some broad policy recommendations derived from the analysis contained in the volume. The 14 years, from 1991, of economic malaise characterized by falling prices, worsening deflation, failing banks and life insurance companies, and rising unemployment and underemployment must be understood in the context of a long-term, multifaceted, national transformation process-economic, demographic, social, and political. Economic underperformance was exacerbated by poor policy decisions, notably the premature tightening monetary policy in the midst of ongoing deflation. The very slow rate of corporate and government restructuring, and the protracted evolution of institutional and corporate governance also played a significant role. The economy recovered well between early 2002 and the first quarter of 2004 but subsequently stalled during the year. Japan's economy has yet to return to a path of full-employment and self-sustained growth. The highest priorities are to achieve sufficient aggregate demand, essential to restore full employment growth; to end persisting deflation; and to promote both private sector and governmental institution restructuring. There will be no economic basis for a fiscal crisis so long as Japan commits to restoring fiscal balance in the very long run. Because the nation's economic and social fundamentals remain strong, we are optimistic that Japan will emerge from this transformation stronger than ever.

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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, 233
Published Here
February 14, 2011