S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
European Instiute of Japanese Studies, Stockholm School of Economics EIJS Working Papers Series

No 199:
Japan’s Economic and Financial Stagnation and the Possibility of a Second Lost Decade

Thomas Cargill ()

Abstract: This paper reviews the reasons why Japan has failed to resolve the economic and financial distress that started in 1990 with the collapse of asset prices despite many efforts to stimulate the economy and redesign the financial system. Why has recovery not yet occurred, and is Japan in a second lost decade in terms of economic and financial development? I discuss how restraints embedded in the Japanese financial system account for the slow and incomplete reform process. These include: financial liberalization in Japan was more a response to specific interest groups than an effort at fundamental redesign; perceived absence of moral hazard and regulatory-market dialectic in Japan; economic history’s influence on Japan’s perceived need for institutional redesign; clash between liberalization and Japanese culture; BIS capital-asset requirements; role of government financial intermediation; and, lack of a perceived crisis in Japan. The paper then turns to general or global restraints to reform and focuses on Bank of Japan policy and the adverse effects of deflation. To date, Japan has not shown a willingness to accept the cost of reform and continues to engage in forgiveness and forbearance. Japan need not adopt the western-type of financial system to the same degree as in the United States or England, but it needs to find a way to depart from the system of mutual support and accept a system that allows for bankruptcy to play a more meaningful role in the allocation of resources.

Keywords: Japan; asset prices; non-performing loans; banks; financial liberalization; moral hazard; regulation; financial intermediation; institutional change.; (follow links to similar papers)

JEL-Codes: E58; G21; G28; N25; (follow links to similar papers)

49 pages, September 1, 2004

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

eijswp0199.pdf    PDF-file (297kB) 
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Nanhee Lee ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:eijswp:0199 This page was generated on 2015-05-27 22:01:41