- Tim Callen, and Jonathan Ostry
- Published Date:
- February 2003
© 2003 International Monetary Fund
Production: IMF Graphics Section
Cover design and figures: Lai Oy Louie
Cover photo: Michael S. Yamashita / Corbis
Composition: Julio R. Prego
Japan’s lost decade: policies for economic revival / editors, Tim Callen and Jonathan D. Ostry – [Washington, D.C.: International Monetary Fund, 2003].
Includes bibliographical references.
1. Japan – Economic policy – 1989 - 2. Fiscal policy – Japan. 3. Monetary policy – Japan. 4. Foreign exchange rates – Japan. 5. International Monetary Fund – Japan. I. Callen, Tim. II. Ostry, Jonathan David, 1962- III. International Monetary Fund.
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Tim Callen and Jonathan D. Ostry
Tim Callen and Takashi Nagaoka
Ben Hunt and Douglas Laxton
Ramana Ramaswamy and Hossein Samiei
Tim Callen and Warwick J. McKibbin
It is now 13 years since the bursting of the asset price bubble in Japan, yet the economy remains weighed down by excess capacity and debt and caught up in a prolonged slump. At the time of writing a moderate recovery from the 2001 recession—the third and deepest of the past decade—appears under way, although it is heavily reliant on external demand. At this juncture, economic policies must underpin a strengthening in private domestic demand to ensure that the rebound is translated into sustained economic growth over the medium term.
Japan’s weak economic performance over the past decade has had implications not only for its own people, but for the world economy more generally, given Japan’s importance as a trading partner and supplier of capital. Rapid economic growth in the United States has served the global economy well, but has also contributed to rising global imbalances. While currency movements so far have been orderly, the possibility of a sudden adjustment cannot be ruled out. It will therefore be essential that in the period ahead global growth becomes more balanced. As part of this process, Japan needs to unlock its growth potential.
The International Monetary Fund (IMF) has been involved in an intensive dialogue with the Japanese authorities to identify the policies needed to bring Japan’s economy out of its decade-long slump. In these discussions, the IMF has emphasized that restoring Japan’s growth performance to its demonstrated potential will necessitate an integrated policy strategy based on the decisive restructuring of the banking and corporate sectors, combined with macroeconomic policies designed to bring an end to deflation. Prime Minister Koizumi and his government deserve strong support for their commitment to carry through such reforms to restore confidence in the Japanese economy and foster sustained growth and job creation.
I hope that the papers contained in this book can make a meaningful contribution to the ongoing debate about the policies needed to achieve this important goal.
International Monetary Fund
The authors would like to acknowledge the valuable comments provided on earlier versions of the papers presented in this book by many colleagues at the IMF—particularly Yusuke Horiguchi and Charles Collyns—and by the Japanese authorities. Anita Jupp provided invaluable organizational and secretarial support, and Fritz Pierre-Louis excellent research assistance. The authors would also like to thank Marina Primorac, who edited the book for publication and coordinated production.
The views expressed here, as well as any errors, are the sole responsibility of the authors, and do not necessarily reflect the opinions of the Japanese authorities, the Executive Directors of the IMF, or other members of the IMF staff.