Japan’s Economic Recession

Abstract

Japan, the world’s second largest economy, is experiencing the worst economic crisis since the Second World War and the government is attempting to avoid a return to the “lost decade” of the 1990s when it was stuck in a deflationary spiral. To fight back recession, the Bank of Japan has kept the interest rate to 0.1 %, even lower than Bank of England’s 0.5 %. Japan’s economy has grown only at an average of 1% annually since 1992. Equally, the country’s recovery of 2003-07 did not have any long term effect on the growth.
In many respects Japan remains very unique among the developed countries. The country’s economic miracle of the 1950s and 1960s has encouraged debate among the scholars to the significance of Japan’s economic past. It is widely seen as due to different model of development in areas such as industrial organisation, the role of the state, social institutions and history. Her appeal lies in the dramatic growth rates and economic transformation. Japan was first Asian country to break the western monopoly of modern industrialisation. Less than a generation ago, Japan was viewed an exemplary success story in terms of rapid economic growth and a model to be emulated by other developed and developing countries. Here I will argue that the Japanese economy suffers from severe problems that are not cyclical but structural in nature. Such structural problems are the most serious impediments to economic dynamism and the future long-run economic success of the country.