1998 Reports

Promoting Japanese recovery

Mishkin, Frederic S.

For well over five years, the Japanese economy has been stagnating and currently it appears to be mired in another recession. What should be done to break the Japanese economy out of its low growth state? What steps do policymakers need to take in order to promote a Japanese recovery? This paper tries to provide answers to these questions by first examining what are the underlying forces that are holding the Japanese economy back. The resulting analysis suggests mat increased informational problems in Japanese financial markets arc the primary sources of weakness in the Japanese economy. This view has important implications for what steps need to be taken to promote recovery and the final section of the paper outlines an approach to get the Japanese economy back on track.