What caused Asia's largest economy, once the envy of the world, to lag behind many of the other industrial countries? And why did it take so long for Japan to recover from the bursting of its asset price bubble of the late 1980s? In this volume, a team from the International Monetary Fund examines the causes of the lingering economic problems of Japan, the crisis in its banking system, the reasons for weak business investment, and the government's efforts to kick-start the economy through a series of stimulus packages. This book presents a compelling story about Japan's economy. Its message - that banking reform and corporate restructuring are central to any sustained revival of the economy- is backed up through detailed background research. This research provided the analytical framework for the IMF's policy advice during a period of rapid change--a period during which macroeconomic policymaking moved into uncharted territory. The research papers were prepared by members of the Japan team in the IMF during 1998 and the first half of 1999.

© 2000 International Monetary Fund

Production: IMF Graphics Section

Cover design: Massoud Etemadi

Figures: Theodore F. Peters, Jr.

Typesetting: Choon Lee

Library of Congress Cataloging-in-Publication Data

Post-bubble blues: how Japan responded to asset price collapse / editors, Tamim Bayoumi, Charles Collyns.

  • p. cm.

  • Includes bibliographical references.

  • ISBN 9781557758729

1. Stocks—Prices—Japan. 2. Financial crises—Japan. 3. Japan— Economic conditions—1989– . 4. Monetary policy—Japan I. Bayoumi, Tamim A. II. Collyns, Charles.

HG5773.P67 1999




Price: $26.00

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  • Preface

  • 1 Overview

    • Tamim Bayoumi and Charles Collyns

I. Explaining the 1990s

  • 2 The Morning After: Explaining the Slowdown in Japanese Growth

    • Tamim Bayoumi

  • 3 Identifying the Shocks: Japan’s Economic Performance in the 1990s

    • Ramana Ramaswamy and Christel Rendu

  • 4 Explaining the Slump in Japanese Business Investment

    • Ramana Ramaswamy

  • 5 Where Are We Going? The Output Gap and Potential Growth

    • Tamim Bayoumi

II. Financial and Fiscal Transmission Mechanisms

  • 6 Too Much of a Good Thing? The Effectiveness of Fiscal Stimulus

    • Martin Mühleisen

  • 7 Monetary Policy Transmission in Japan

    • James Morsink and Tamim Bayoumi

III. The Challenge of Corporate Restructuring

  • 8 Financial Reorganization and Corporate Restructuring in Japan

    • Joachim Levy

  • 9 Reform of Japan’s Insolvency Laws

    • Joachim Levy

  • Contributors

The following symbols have been used throughout this book:

  • … to indicate that data are not available;

  • — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;

  • – between years or months (for example, 1997–98 or January–June) to indicate the years or months covered, including the beginning and ending years or months;

  • / between years or months (for example, 1997/98) to indicate a crop or fiscal (financial) year.

“Billion” means a thousand million; “trillion” means a thousand billion.

Minor discrepancies between constituent figures and totals are due to rounding.

The term “country,” as used in this book, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.


The research papers presented in this book were prepared by members of the Japan team in the IMF, working under the direction of Charles Collyns and Tamim Bayoumi, during 1998 and the first half of 1999. The papers complement the policy analysis provided in Japan—Staff Report for the 1999 Article IV Consultation (IMF Staff Country Report No. 99/93) and the overview of recent trends provided in Japan—Economic and Policy Developments (IMF Staff Country Report No. 99/114). Support and encouragement from senior members of the Asia and Pacific Department—especially Hubert Neiss, Yusuke Horiguchi, and David Goldsbrough—are gratefully acknowledged. The papers also benefit from useful comments from participants in seminars at the IMF and at the Japan Group of the National Bureau of Economic Research and the Tokyo Center for Economic Research. The authors would like to thank the stalwart assistance of Anita Jupp in preparing the text, Youkyong Kwon and Fritz Pierre-Louis for research assistance, and Jeremy Clift of the IMF’s External Relations Department for editing and producing this book.

The views expressed in this volume are those of the authors, and do not necessarily represent those of the Japanese authorities, IMF Executive Directors, or other IMF staff.