The Causes of Japan’s Economic Stagnation
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Publication date: 2005-06-30
GNPJE 2005;200(5-6):63-83
In the early 1990s, the Japanese economy, after more than three decades of robust growth, entered a phase of stagnation. The decreased rate of growth and deteriorated economic equilibrium made Japan lose its leadership in international competitiveness. The direct causes for the economic stagnation were a strong appreciation of the yen (Endaka) and speculation (bubble economy) as well as the transfer of production capacity abroad (hollowing out). Japan’s socioeconomic system, which ensured a high rate of growth, booming exports and capital expansion from the mid-1950s, lost its momentum in the 1990s. Reforms carried out by the ruling Liberal Democratic Party proved insufficient. The financial system, including the banking sector—which was considered a foundation of Japan’s economic power in the second half of the 1980s—found itself in a crisis. Despite many attempts and programs to improve the position of banks, the results have been unsatisfactory. The crisis of the banking system delays the process of restructuring capital and industrial groups (Keiretsu). The liberalized flow of factors of production, the globalization of production and the development of a post-industrial economy, based on services and knowledge, have revealed that Keiretsu groups are not adapted to the new economic, technological, social and international conditions of development. The country’s economic stagnation coincided with major demographic changes in Japan. The decreased growth of the population and its deteriorated age structure put the Japanese economy in an unfavorable position from the perspective of development.
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