1. Changes in political economy
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)

4. Bubble burst (1990) 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

6. GDP growth (annual %)

7. GDP in constant 2010 US$

8. 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

9. Industrial contributions

11. Party Realignment (‘90s)

12. Prime Ministers 1993-2001 3 non-LDP Prime Ministers 1993 - 1996
LDP coalition cabinets since 1996

13. 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

14. 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

15. 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

16. Appreciation of yen

17. 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

18. Negative interest rate

19. Changes in economic policies
privatization of nationalized industries
Telegraph & Telephone (1985)
National Railways (1987)
Japan Post (2007)
official effort to support declining industries
protect the inefficient
promote the competitive

20. 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

21. 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

22. 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