Thirty Years’ Economic Crisis

This chapter chronicles Japan’s Great Stagnation during 1985–2012, from the Plaza Accord to just before the launching of Abenomics, and analyzes the economic thought of the Japanese policymakers. As see in the following chapters, economists and policymakers are divided on the true causes of Japan’s Great Stagnation, and the debate continues in the present. Broadly speaking, there are two strands of thought, one emphasizing structural factors and the other emphasizing policy failures. The narrative in this chapter emphasizes Japan’s macroeconomic policy failures, since this perspective clarifies the fact that Japan experienced not only exogenous shocks but also a series of mistakes in macroeconomic policy, although other problems, such as the bad loans problem and policy failures in other spheres, are not neglected.1 This perspective could also help us point out more specific problems and draw more specific lessons from Japan’s experiences than another perspective would allow.