Problems of Growth and Stability
New Horizons in International Business series
Edited by Pier Carlo Padoan, Paul A. Brenton and Gavin Boyd
Chapter 9: Japanese economic structures and finance: characteristics and causes of the current slowdown
Thomas F. Cargill and Elliott Parker By the end of the 1980s, the Japanese economy appeared to have reached a ‘high plateau of prosperity’. With the exception of a brief period in the early 1970s,1 Japan’s economic stability after 1950 was remarkable, and was matched by political stability with the dominance of the Liberal Democratic Party (LDP). Japan had become the world’s second largest economy, the world’s largest creditor nation, and the world’s most stable industrialized country. As a result, the ‘Japan model’ was increasingly being suggested as an alternative to both the market-oriented regimes of Western economies and the socialist-economic planning regimes of the Soviet Union. The World Bank (1993), for example, described the rapid economic growth in Japan and other Asian economies as the ‘Asian Miracle’, and attributed the economic performance in these countries to government guidance and support in mobilizing their real and financial resources.2 Yet in 1990 and 1991, after monetary tightening by the Bank of Japan led to a sudden and dramatic deflation in asset prices (particularly for equity and land), growth in the Japanese economy came to a virtual halt.3 Financial distress has characterized Japan since 1990, and observers now regard the 1990s as Japan’s ‘lost decade’ of economic and financial development. Real GDP growth during the 1990s averaged only 1.4 percent per year, compared to 4 percent in the previous decade and almost 10 percent per year in the years between the Korean War and the OPEC oil embargo. Despite demand management...
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