Japan, Facing Economic Maturity

Japan, Facing Economic Maturity

Japan, Facing Economic Maturity

Japan, Facing Economic Maturity

Synopsis

Discusses the ways in which Japan has attempted to handle the problems caused its rapid economic growth and analyzes Japan's relations with the U.S.

Excerpt

Japan is one of the leading industrial nations of the world, the result of a remarkable century of determined economic development. But that very success has now created adjustment problems that are testing Japan's ability to adapt to its new economic circumstances.

In this study, Edward J. Lincoln finds that the roots of Japan's present trade surpluses lie in the slowdown in economic growth that occurred in the 1970s and the resulting excess of savings over investments that emerged in the Japanese economy. Masked by the two oil crises in the 1970s and by Tokyo's initial willingness to follow an expansionary fiscal policy, the domestic imbalances led directly to enormous current-account surpluses in the 1980s, contributing to tense relations with the United States and other nations. Since 1985 the appreciation of the yen against the dollar has ushered in a new and troubling period. Too little time has passed to judge how well Japan will cope, but the current wrenching change could prove to be the most difficult adjustment of all.

These macroeconomic developments have had important implications for Japan's financial markets, and have led to considerable domestic deregulation and the reduction of barriers to international financial transactions. Although the Ministry of Finance has acquiesced in these changes reluctantly, the process, once started, has gained a momentum that is still continuing. Lincoln concludes with a consideration of bilateral relations. The central importance of savings-investment imbalances leads him to stress the critical need for Japan to stimulate domestic demand and for the United States to control its budget deficits.

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