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  3. Journal of Economic Perspectives
  4. Winter 2004
  5. Japan's Financial Crisis and Economic Stagnation

Japan's Financial Crisis and Economic Stagnation

  • Takeo Hoshi
  • Anil K. Kashyap
Journal of Economic Perspectives
vol. 18, no. 1, Winter 2004
(pp. 3-26)
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Abstract

We survey the macroeconomic stagnation and financial problems in Japan. The financial sector assessment includes separate analyses of the commercial banks, the life insurance companies and the government's fiscal investment and loan program (FILP). We estimate that the Japanese taxpayer will have to pay at least another 100 trillion yen (20% of GDP) to cover financial system losses. We explain how the current dysfunctional Japanese banking system misallocates funds by keeping many insolvent firms in business. These inefficient firms crowd out potentially profitable ones and worsen macroeconomic stagnation. A sustained macroeconomic recovery requires serious restructuring aimed at stopping this cycle.

Citation

Hoshi, Takeo, and Anil K. Kashyap. 2004. "Japan's Financial Crisis and Economic Stagnation ." Journal of Economic Perspectives, 18 (1): 3-26. DOI: 10.1257/089533004773563412

JEL Classification

  • E44 Financial Markets and the Macroeconomy
  • E52 Monetary Policy
  • E62 Fiscal Policy
  • G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
  • G22 Insurance; Insurance Companies; Actuarial Studies
  • G28 Financial Institutions and Services: Government Policy and Regulation
  • O53 Economywide Country Studies: Asia including Middle East
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