1998 Reports

Japan's economy misery: What next?

Patrick, Hugh T.

Sustained poor economic performance and the deepening banking mess are what are making Japanese feel miserable. I feel these problems are about at their worst: there is light at the end of the tunnel. This Foote Lecture traces why Japanese growth was so poor throughout the 1990s and why the banking problems worsened. I then consider the current situation and the policies taken in the wake of the July 12 Upper house election, which are a major turning point for Japanese economic policy, and speculate on economic prospects. Foreign observers have talked about a "Japan crisis" for several years, while Japanese have simply shown pessimism and lack of confidence about the future - the country's and their own. Restoring confidence is a requisite for sustained recovery and growth, and this requires both banking reforms and recovery of sustained economic growth. The new government is in the process of making major commitments to achieve these goals. The political imperative is so great, and the required policy actions are so obvious, that fiscal and monetary stimulus will persist and strengthen, and banking reform will proceed.