Japan's economy stumbled in the 1990s. After four decades of rapid growth that transformed Japan into a wealthy country at the world's technological frontier, the last decade brought prolonged economic stagnation. The rapid run-up in asset prices in the late 1980s, followed by their collapse in the early 1990s, left a debt overhang that paralyzed the banking sector. Policy reforms were initially half-hearted, and businesses were slow to restructure as the global economy changed. The lagging economy has seemed impervious to aggressive fiscal stimulus measures and is still plagued by ongoing price deflation. Japan's struggle has called into question the ability of the country's economic institutions—originally designed to support factor accumulation and rapid development—to adapt to the new economic environment of the 21st century.

Yet Japan's economy is already changing. Driven by an aging population, rapid technological change, and increasing global competition, the country's public and private institutions are being slowly reshaped. This volume explores the forces that will drive structural and institutional change in three areas over the next decade: the macroeconomy, the organization of industry, and the global economic and political environment. Economists, demographers, and Japan specialists examine key aspects of the economy that will be transformed in coming years, including population and savings, the public pension system, labor markets, financial reforms, deregulation of service industries, productivity performance, foreign investment, trade, and the impact of an emerging China.

The volume fills an important gap in the existing economic literature. While much has been written about Japan's pre-1990s institutions and economic performance, this volume is unique in it forward-looking orientation—trying to understand not only the institutional and structural changes that have already reshaped Japan in the 1990s, but to identify the critical trends and institutional changes that will mold Japan's new economy over the next decade.

© Oxford University Press

TABLE OF CONTENTS

List of Contributors

Introduction

Magnus Blomström, Byron Gangnes, and Sumner La Croix

PART I: MACROECONOMIC CHANGES IN JAPAN

1. Historical, Structural, and Macroeconomic Perspectives on the Japanese Economic Crisis

David E. Weinstein

2. Population, Labor Force, Saving, and Japan's Future

Andrew Mason and Naohiro Ogawa

3. Will Japan's Current Account Turn to Deficit?

F. Gerard Adams and Byron Gangnes

4. Japan's Public Pension System in the Twenty-First Century

Charles Yuji Horioka

5. Japanese Labor Markets: Can We Expect Significant Change?

Marcus Rebick

PART II: THE REGULATORY REGIME AND INDUSTRIAL RESTRUCTURING IN JAPAN

6. Central Banking, Financial, and Regulatory Change in Japan

Thomas F. Cargill

7. Japan's Big Bang and the Transformation of Financial Markets

Takatoshi Ito and Michael Melvin

8. Has Japan Specialized in the Wrong Industries?

Edward N. Wolff

9. The Sogo Shosha: Finding a New Role?

Örjan Sjöberg and Marie Söderberg

10. Regulatory Reform in Japan: The Road Ahead

Sumner La Croix and James Mak<

PART III: FOREIGN DIRECT INVESTMENT, TRADE, AND REGIONAL INTEGRATION

11. FDI in the Restructuring of the Japanese Economy

Magnus Blomström, Denise Konan, and Robert E. Lipsey

12. A New Millennium for Japanese-North American Economic Policy Relations?

Steven Globerman and Ari Kokko

13. Japan as Number Three: Effects of European Integration

Ari Kokko, Bruce Henry Lambert, and Fredrik Sjöholm

14. Economic Development in China and Its Implications for Japan

Shigeyuki Abe and Chung H. Lee

Index