Advanced Search
MyIDEAS: Login to save this paper or follow this series

Finance and Changing US-Japan Relations: Convergence Without Leverage--Until Now

Contents:

Author Info

  • Adam S. Posen

    ()
    (Institute for International Economics)

Abstract

In the postwar era, US-Japan economic relations have been characterized by substantial tensions, yet this has not damaged the underlying security relationship or critically harmed the multilateral economic framework. In fact, these two economies have become more integrated over time even as these tensions played out. These tensions, however, have required an enormous expenditure of political capital and officials' time on both sides of the Pacific and have led to foregone opportunities for institution building and policy coordination. They have deepened since Japan "caught up" with the United States around 1980, and Japanese and US firms began increasingly to compete for profits and market share in the same sectors. Moreover, as both the US and Japanese economies continue to mature - both in terms of the age of their populations and their industrial mix - they will likely face even greater tensions between them over allocating the management and costs of industrial adjustment. Financial liberalization and integration could change all this. At present, US and Japanese corporate governance and investment behavior appear to be converging towards the arms-length, market-based, US approach to financial markets. If this trend continues, it will not only reduce tensions in the near term by facilitating the resolution of specific disputes, but it could also forge common interests between domestic interest groups across the Pacific while giving those groups more power relative to their respective governments. Over the longer-term, convergence would also produce common US and Japanese policy goals in relation to international capital flows and investment. Finally, for a transitional period, convergence should simultaneously increase US influence and improve Japanese economic performance, a combination that has been difficult to attain since the first oil shock. Convergence between the US and Japanese financial systems, however, is not a foregone conclusion. The general question of whether the decline of national models is inevitable remains open - and the specific outcome of the interaction between Japanese political economy (arguably the most distinctive among industrial democracies) and financial liberalization (arguably the most transformative aspect of globalization) already is unfolding as a critical case study. Even if most would agree that some form of liberalization has taken place in Japanese as well as American financial markets, scholars disagree over whether the Japanese form of liberalization is distinct from the American, whether this liberalization is likely to be the victim of political backlash (in either country), or whether financial sector change is likely to transform the rest of Japan's economy. This essay is focused on a related but more policy-oriented question: If we assume that the current trends toward liberalization in and convergence between the United States and Japanese financial system persist, how will this affect US-Japan relations? I will present evidence of convergence toward the increasingly deregulated US system over the past 15 years, and I will argue that this trend is likely to persist and probably accelerate. I assume as well that the case need not be made here on the pure economics why the more liberal model is likely to confer efficiency gains (at least in the short-run). I do not presume that the ongoing academic discussion of globalization and its effects has been settled. For purposes of policymaking, however, if this convergence assumption proves incorrect in the coming years, it almost certainly would mean that financial factors would be only a very minor factor in US-Japan relations (as it was until recently), or simply one of many sectoral disputes with dynamics with which we are familiar, having no special implications. Several hundred billion dollars have already been bet by Japanese and American investors on the belief that financial liberalization and convergence will occur, so it seems worth exploring the implications of this, I would argue, likely possibility.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.petersoninstitute.org/publications/wp/01-8.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP01-8.

as in new window
Length:
Date of creation: Aug 2001
Date of revision:
Handle: RePEc:iie:wpaper:wp01-8

Contact details of provider:
Postal: 1750 Massachusetts Avenue, NW, Washington, DC 20036-1903
Phone: 202-328-9000
Fax: 202-659-3225
Email:
Web page: http://www.piie.com
More information through EDIRC

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Sandra E Black & Lisa M Lynch, 2002. "What's Driving the New Economy? The Benefits of Workplace Innovation," Working Papers 02-03, Center for Economic Studies, U.S. Census Bureau.
  2. Kathryn Dominguez & Jeffrey A. Frankel, 1990. "Does Foreign Exchange Intervention Work?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 16, July.
  3. Adam S. Posen, 1998. "Restoring Japan's Economic Growth," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 35, July.
  4. Thomas F. Cargill & Michael M. Hutchison & Takatoshi Ito, 2001. "Financial Policy and Central Banking in Japan," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032856, December.
  5. C. Randall Henning, 1994. "Currencies and Politics in the United States, Germany, and Japan," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 15, July.
  6. Takeo Hoshi & Anil Kashyap, 2004. "Corporate Financing and Governance in Japan: The Road to the Future," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582481, December.
  7. Adam S. Posen, 2001. "Japan 2001: Decisive Action or Financial Panic," Policy Briefs PB01-04, Peterson Institute for International Economics.
  8. Schoppa, Leonard J., 1999. "The Social Context in Coercive International Bargaining," International Organization, Cambridge University Press, vol. 53(02), pages 307-342, March.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iie:wpaper:wp01-8. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.