Skip to main content
×
×
Home
  • Print publication year: 2011
  • Online publication date: August 2011

10 - Japan's institutional configuration and its financial crisis

Summary

In 1990, very few economists predicted that the stock market crash in Tokyo would trigger more than a decade of economic recession and stagnation. Unlike most developed economies, Japan had remained a dynamic economy over the 1970s and 1980s, experiencing neither stagflation nor rising unemployment even though economic growth had slowed. From 1973 to 1990, Japan grew at a rate of 3.9 per cent compared with the average of 2.5 per cent in Organization for Economic Co-operation and Development (OECD) countries and maintained close to full employment, with a 2 per cent unemployment rate.

The Japanese institutional setting at the heart of this sustained period of growth was based on: i) a wages policy based on life employment and progressive income to ensure the support and the involvement of employees in the achievement of competitiveness; ii) an accommodating financial system that adjusted its profitability objectives to firms' performances and that formed tight links with borrowers; iii) governmental coordination of private sector strategies and expectations (Boyer, 2004).

Nevertheless, the 1980s were characterised by a growing disequilibrium linked to credit expansion and financial bubbles. The belief that Japanese organisations were able to dominate key industries led to a large expansion of credit. In reaction to these profit perspectives, financial assets, in particular real estate, attracted new investors and led to a large asset price inflation. The evolution of two factors modified the Japanese institutional setting.

Recommend this book

Email your librarian or administrator to recommend adding this book to your organisation's collection.

Financial Assets, Debt and Liquidity Crises
  • Online ISBN: 9780511792540
  • Book DOI: https://doi.org/10.1017/CBO9780511792540
Please enter your name
Please enter a valid email address
Who would you like to send this to *
×