The Japanese economy at a historical crossroads

In 1991 the Japanese economy entered a severe recession brought about by a large fall in investment and by a contraction of the current account surplus. The government responded by raising expenditure and lowering interest rates. The stagnation persisted. This paper analyses the political and economic environment that continues to hold back Japan's future growth. Modifications in such characteristic institutions as lifetime employment, corporate governance and the banking system are necessary if Japan is to avoid economic stagnation.