Academic Commons

Reports

The causes of Japan's financial crisis

Patrick, Hugh T.

Japan's financial system, and especially its banking system, today are in substantial trouble, epitomized by the bad loan problems. This paper provides an overview of the major causes of the current banking mess. Fundamental forces include the transformation of the Japanese economy in the mid-1970s from one of excess investment demand to excess savings surplus, and with successful growth the development of a number of strong, increasingly companies. The paper briefly discusses four major causes that were particularly important: failure to create a prudential regulatory system as deregulation proceeded; the creation and then bursting of the stock and real estate market bubbles; globalization; and the high rate of financial innovation. A series of five major macroeconomic policy mistakes are identified as retarding the recovery of the economy, and indeed the late 1996 policy errors led to the 1987-98 recession. Japan's 1990s poor economic performance has made the banking problems more severe and costly, as hopes were dashed that the economic recovery would reduce the bad loan adjustment process.

Geographic Areas

Subjects

Files

More About This Work

Academic Units
Center on Japanese Economy and Business
Publisher
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Series
Center on Japanese Economy and Business Working Papers, 146
Published Here
February 9, 2011
Academic Commons provides global access to research and scholarship produced at Columbia University, Barnard College, Teachers College, Union Theological Seminary and Jewish Theological Seminary. Academic Commons is managed by the Columbia University Libraries.