Forging Ahead, Falling Behind
Chapter 4: Economic and Financial Policy in a Changing International Environment: The Origins and Course of the Bubble Economy
JOBNAME: Garside PAGE: 1 SESS: 10 OUTPUT: Wed Jun 27 12:09:56 2012 4. Economic and ﬁnancial policy in a changing international environment: the origins and course of the bubble economy Given the remarkable and relatively swift transformation in Japan’s competitive and trading position within the industrialized world from the 1960s and the underlying rationale of its post-war political economy, to which we have just drawn attention, it is understandable that the country’s elite remained wedded to forms of economic management and relational ties that had spurred and sustained catch-up growth. Japan’s experience in the early 1970s indicates that the country was capable of adapting to changing international circumstance without undermining its particular comparative advantages. However, experience from the 1980s onwards severly tested that capacity. To appreciate fully the drastic turnaround in Japan’s economic and especially ﬁnancial condition – from heady speculative fever during the mid-to-late 1980s to prolonged deﬂationary recession and stagnation during the ensuing decade – it is necessary to trace the country’s policy responses to two major facets of ongoing globalization, one stemming from adjustments to the exchange rate and the other from the effects of ﬁnancial deregulation. Trade Surpluses and the Yen During the high-growth period, as we have noted, Japan had ruthlessly and deliberately fostered competitive manufacturing for export and restricted imports. In this it was driven by interlocking monetary and industrial policies. The banking system, under pressure to lend, had ﬁnanced productive capacity beyond immediate concerns of proﬁtability; export vitality was therefore vital...
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