Finance and Changing US-Japan Relations: Convergence Without Leverage--Until Now
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.
|Date of creation:||Aug 2001|
|Date of revision:|
|Contact details of provider:|| Postal: 1750 Massachusetts Avenue, NW, Washington, DC 20036-1903|
Web page: http://www.piie.com
More information through EDIRC
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.:
- Sandra E Black & Lisa M Lynch, 2002.
"What's Driving the New Economy? The Benefits of Workplace Innovation,"
02-03, Center for Economic Studies, U.S. Census Bureau.
- Sandra E. Black & Lisa M. Lynch, 2004. "What's driving the new economy?: the benefits of workplace innovation," Economic Journal, Royal Economic Society, vol. 114(493), pages F97-F116, 02.
- Sandra E. Black & Lisa M. Lynch, 2001. "What's driving the new economy? The benefits of workplace innovation," Staff Reports 118, Federal Reserve Bank of New York.
- Sandra E. Black & Lisa M. Lynch, 2003. "What's driving the new economy?: the benefits of workplace innovation," Working Paper Series 2003-23, Federal Reserve Bank of San Francisco.
- Sandra E. Black & Lisa M. Lynch, 2000. "What's Driving the New Economy: The Benefits of Workplace Innovation," NBER Working Papers 7479, National Bureau of Economic Research, Inc.
- 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.
- 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.
- Adam S. Posen, 2001. "Japan 2001: Decisive Action or Financial Panic," Policy Briefs PB01-04, Peterson Institute for International Economics.
- 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.
- Schoppa, Leonard J., 1999. "The Social Context in Coercive International Bargaining," International Organization, Cambridge University Press, vol. 53(02), pages 307-342, March.
- Kathryn Dominguez & Jeffrey A. Frankel, 1990. "Does Foreign Exchange Intervention Work?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 16.
- Paul Osterman, 2000. "Work Reorganization in an Era of Restructuring: Trends in Diffusion and Effects on Employee Welfare," ILR Review, Cornell University, ILR School, vol. 53(2), pages 179-196, January.
- Adam S. Posen, 1998. "Restoring Japan's Economic Growth," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 35.
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 references are entirely missing, you can add them using this form.