The Japanese Financial Sector’s Transition from High Growth to the ‘Lost Decades’<sup>1</sup>

Wataru Takahashi

in East Asian Capitalism

Published in print July 2012 | ISBN: 9780199643097
Published online September 2012 | e-ISBN: 9780191741944 | DOI:
The Japanese Financial Sector’s Transition from High Growth to the ‘Lost Decades’1

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This chapter explores the transformation of Japan's financial system in recent decades. Japan provided an early paradigm case of Asian capitalist development, with a financial sector that was highly regulated and controlled during its high growth phase. Its financial system was characterized by a relatively high degree of cooperation between the government, banks, and corporations. Main banks played a crucial role in both risky corporate financing and economic coordination, with their profitability protected by government regulation. Endogenous and exogenous forces reshaped this system from the 1970s, as Japanese big business began to lose its appetite for borrowing, savings accumulated, and Japan’s main trading partners pushed for more rapid liberalization. By the early 1990s, the financial system was in crisis, having become a major drag on growth, and yet reform remained very gradual and highly contested. The chapter explores the reasons for this paradox of crisis with gradual reform, arguing that it has its roots in a set of dysfunctional institutional complementarities and political structures.

Keywords: Japanese financial system; main banks; financial regulation; market liberalization; political structures

Chapter.  8092 words.  Illustrated.

Subjects: Political Economy

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