Chapter 3: Revitalizing the Japanese economy
C.H. Kwan INTRODUCTION The 1990s will be remembered as Japan’s lost decade, with economic growth lagging far behind not only the high level it used to achieve in the past but also that of other major industrial countries. Two sets of factors combined contributed to the stagnation of the Japanese economy during this period. On the one hand, falling asset prices had an immense negative impact on domestic spending, and macroeconomic policies failed to restore production to its potential level. On the other hand, the traditional ‘Japanese model’, which seemed to work so well in the past when Japan was catching up with the West, had become impotent once this phase was over. It has also come to be widely recognized that structural reform is essential for Japan to cope with a new environment characterized by globalization, an ageing population and the transition to a post-industrial society. In an attempt to revitalize the Japanese economy, the Hashimoto Administration initiated a comprehensive reform programme covering six major areas in late 1996. Led by the ﬁnancial Big Bang, major eﬀorts have been made to enhance competition through deregulation. Japanese companies have responded by changing business practices, with more emphasis on the market mechanism as the guiding principle. Mergers and acquisitions (M&As) across corporate groups and national borders, for example, have become a common tool of restructuring. The success of Japan’s reform programme hinges on how it handles the trade-oﬀ between short-term and long-term growth and that between equity and e...
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