Fiscal Responses and Future Challenges
Edited by John Wanna, Evert A. Lindquist and Jouke de Vries
Chapter 5: Budgeting in Japan after the global financial crisis: postponing decisions on crucial issues
The American subprime loan crisis that emerged in 2007–08 was seen by most Japanese people as a ‘fire on the opposite shore’. It was only after the collapse of Lehman Brothers on 15 September 2008 that Japan began to take the matter seriously as something that affected daily life. The situation in Japan after the Lehman bank collapse was suddenly quite different from the period before. This is why the 2008 global financial crisis (GFC) became known in Japan as the ‘Lehman Shock’. Japan experienced an earlier housing bubble collapse in the 1990s. The problem of non-performing loans in the financial institutions was solved by the infusion of a huge amount of public money. Experiencing the collapse in housing prices and being under the regulation and guidance of the government, Japanese financial institutions became cautious about exposure to high-risk lending. Hence, Japan largely assumed that the subprime fiasco occurring in the United States of America could not trigger a repeated banking crisis in Japan. Soon after the collapse of Lehman Brothers was reported, the Economic and Fiscal Policy Minister said: ‘It is just like a bee sting. Japanese financial institutions will never be harmed. A calm and decent response is expected.’ His remark was intended to prevent panicked behavior.
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