Japan in 1990s

1. Japan in 1990s Changes in political economy

2. Changes in political economy • Challenges to stability of equilibrium • domestic socioeconomic or political problems • external economic or security problems • Changes of different magnitude • adjustments in public policy • changes in socioeconomic basis • changes in economic or political institutions • major shifts in two or three spheres

3. Bubble burst (1990-01-01)

4. Bubble burst (1990-01-01) • Massive stock and land price collapse • annual GDP growth rate around 1% • manufacturing productivity decreased • corporate bankruptcies • unemployment rate • economic performance at bottom of industrialized democracies • opposite from 1960s

5. Japan slows down

8. International competitiveness • World Economic Forum ranking • Japan was No. 1 in 1990 • 14th in 1997 • 15th in 2001 • 10th in 2012 • 9th in 2013

9. Political earthquake of 1993-95 • Economic stagnation since late 1980s • Major corruption scandals of LDP leaders • 2.5 billion yen contribution from a company • 1 billion yen income tax evasion • media revelation of systematic corruption • Businesses’ demand for political reform • high cost of doing business • political bribes and contributions

10. Industrial contributions

12. Party Realignment (‘90s)

13. Prime Ministers 1993-2001 • non-LDP Prime Ministers 1993 - 1996 • LDP coalition cabinets since 1996

14. New Electoral Rules (1996) • 480 members in House of Representatives • 300 elected from single-member districts • 180 elected from 11 proportional representation districts • 252 members in House of Councillors • 100 elected from proportional representation district • 152 elected from 47 prefecture constituencies

15. More shocks in 1990s • Large and rising government deficit and debt (~150% of GDP) • Aging population • Banking crises and non-performing loans • Asian financial crisis (1997-8) • “Hollowing out” of industry • natural disasters and terrorist attacks

16. Economic transformation • capital market and currency had become deeply integrated into world markets • investment abroad • formal trade barriers and limits on foreign direct investment largely eliminated • Japanese-owned firms became multinational • overseas production, financing, R&D, and technological alliance

17. Appreciation of yen

18. Changes in economic policies • New reliance on • consumption taxes • borrowing • debt service • public debt more than twice its GDP • move away from monetary restraint • zero interest rate

19. Zero interest rate

20. Changes in economic policies • privatization of nationalized industries • official effort to support declining industries • protect the inefficient • promote the competitive

21. Inconsistent policies • Lack of cohesiveness and singularity in economic policy • internal contradictions • no longer a cohesive strategy directed at structural improvement of economy • eclectic mixture of ad hoc efforts to deal with economic problems

22. Still an outlier • Comparison with other industrialized democracies • markets for imports remained skewed against high value-added manufacturing goods • imports from overseas subsidiaries of Japanese-owned multinational corporations

23. Still an outlier • Comparison with other industrialized democracies • limited amount of foreign direct investment in Japan • FDI per capita in Japan is less than 10% of that in Germany, less than 5% of that in UK