The Current State of the Japanese Economy and Remedies
Japan has reached the limits of conventional macroeconomic policies. Lowering interest rates will not stimulate the economy because widespread excess capacity has made private investment insensitive to interest rate changes. Increasing government expenditure in the usual way will have small effects because it will take the form of unproductive investment in the rural areas. Cutting taxes will not increase consumption because workers are concerned about job security and future pension and medical benefits. Expanding the monetary base will not induce banks to increase investment loans because the proportion of nonper-forming loans in their portfolios is growing because of the prolonged economic stagnation. In order for sustained economic recovery to occur in Japan, the government must change the makeup and regional allocation of public investments, resolve the problem of nonperforming loans in the banking system, improve the corporate governance and operations of the banks, and strengthen the international competitiveness of domestically oriented companies in the agriculture, construction, and service industries. Copyright (c) 2002 Center for International Development at Harvard University and Massachusetts Institute of Technology.
Volume (Year): 1 (2002)
Issue (Month): 2 ()
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