« Back to Results

The Japanese Economy in the Age of Uncertainty

Paper Session

Saturday, Jan. 5, 2019 8:00 AM - 10:00 AM

Hilton Atlanta, Crystal C
Hosted By: Association for Evolutionary Economics
  • Chair: Tanweer Akram, Thrivent Financial

The Japanese Economy: Stagnation, Recovery, and Challenges

Tanweer Akram
Thrivent Financial


The Japanese economy has shown signs of a modest recovery. The Japanese economy has suffered for more than two decades from stagnation, characterized by low inflation or outright deflation, subdued long-term interest rates, elevated government debt and chronic fiscal deficits, and the decline in its share of global exports. The country has been mired in a liquidity trap for long. Despite the recent recovery, observed inflation is still below the Bank of Japan’s target of 2.0% inflation on a sustained basis. Wage growth is muted even though unemployment rate is low. Meanwhile the working age population continues to shrink and the population is aging rapidly. Japan’s export sector faces stiff competition as its Asian neighbors enhance their industrial capability, manufacturing prowess, and national innovation systems. Political tensions with China over disputed territories remain. Openness to immigration is quite limited. This session analyzes Japan’s economic challenges in light of the moderate recovery after the protracted stagnation and liquidity trap, ongoing demographic changes, the reforms of Abenomics, and globalization.

Changes in Corporate Governance and Financial Intermediation In Japan

Etsuko Katsu
Meiji University
Yasutoshi Noshita
Kokushikan University


Japan suffered economic stagnation for more than two decades after the severe financial crises in the 1990s. Finally it has almost exited from persisting deflation with powerful non-traditional monetary policy as one of the three arrows of Abenomics. During the bubble economy in the 1980s, the Japanese companies suffered “three excesses” including excess employment, excess debt, and excess stock investments. In the 1990s and the 2000s, in the process of dissolving the three excesses, they built up cash holdings to enhance the financial base, which changed the flow of funds drastically to make continuous huge surplus in the current account. Enforcement of corporate governance is one of the main respects of Abenomics, and Japan has modified the corporation law recently and introduced Japan’s stewardship code and corporate governance code in 2014 and 2015 respectively. In response to the changes in corporate governance, financial intermediation in Japan has been changing. This paper focuses on the financial intermediation in Japan, which was the core of so-called Japanese system with main bank system, cross-shareholding, life-long employment, and internal corporate governance. It undertakes empirical analysis of corporate governance and financial intermediation and shows the challenges of the Japanese system. It also analyzes capital flows between Japan and emerging Asia as it pertains to the change of corporate governance and financial intermediaries.

The Effectiveness of Unconventional Monetary Policy in Japan

Heather Montgomery
International Christian University
Ulrich Volz
SOAS University of London & German Development Institute


Since the global financial crisis of 2007-2008, central bankers around the world have been forced to abandon the conventional monetary policy tools in favor of unconventional policies, such as quantitative easing, forward guidance, and even lowering the interest rate paid on bank reserves into negative territory. Japan, which faced a crisis in its banking sector and came up against the theoretical zero lower bound on interest rates nearly a decade earlier, was a pioneer in the use of many of these unconventional policy tools. This paper analyzes the effectiveness of Japan’s bold experiment with unconventional monetary policy. Using a panel of bi-annual bank data from 109 Japanese banks over the period 2000-2015, this study analyzes the effectiveness of quantitative easing policy on the bank lending channel of monetary policy transmission. Preliminary findings suggest that Japan’s unconventional monetary policy worked: there is a bank lending channel of monetary policy transmission in Japan. These results are robust to the inclusion of time fixed effects and generalized method of moments analysis. However, contrary to the predictions of banking theory, the effects of quantitative easing seem to come mostly through undercapitalized banks.

The Japanese Balance Sheet Recession 20 Years On: Abenomics – Solution or Corporate Financialisation?

Ewa Karwowski
University of Hertfordshire
Konstantin Bikas
Positive Money
Mimoza Shabani
University of East London


The Japanese economy has remained in poor health since the crisis the country experienced in the aftermath of the stock exchange and real estate market collapse in the late 1980s. Lately, there has been some enthusiasm that Japan has finally embarked on a sustainable recovery. This perception was mainly fuelled by the IMF’s (2015) approval for the reform package introduced by Prime Minister Abe following his election in 2012 and more recent assessments of its partial success (IMF 2017). This paper assesses the impact of Abenomics on Japanese non-financial corporations, the motor of the country’s strong growth performance in the decades after World War II and before the crisis. Doing so, we engage with the claim put forward in the financial press as well as academic debates (Robinson, 2017), that Japan’s economy has become financialised. We conduct an analysis of Japanese firms’ income sources (a la Krippner, 2005) and their balance sheets, using flow of funds data. Given our results, we argue that Abenomics has neither led to a sustainable recovery in firms’ spending nor to their financialisation.

The Covered Interest Parity Puzzle and the Evolution of the Japan Premium

Alexis Stenfors
University of Portsmouth


A disturbance or breakdown of the first stage of the monetary transmission mechanism tends to be synonymous with high and volatile money market risk premia. Such market indicators include violations of the covered interest parity (CIP). This was not only evident during the financial crisis of 2007-08, but already during the Japanese banking crisis in the late 1990s, when it became referred to as the ‘Japan Premium’. Despite extraordinary policy measures by central banks in recent years, however, deviations from the CIP indicate continuing or even elevated stress in the international monetary system. This paper examines a string of distinct, but closely interconnected, assumptions and perceptions regarding CIP arbitrage. By doing so, it not only sheds some fresh light on the recent ‘CIP puzzle’ but also on the era of the Japan Premium during the 1990s and its aftermath.
JEL Classifications
  • F4 - Macroeconomic Aspects of International Trade and Finance
  • B5 - Current Heterodox Approaches