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Abenomics and Challenges for the Japanese Economy

  • Kenji AramakiEmail author
Chapter

Abstract

As we have seen in the preceding chapters, the corporate sector, which is the central player in the Japanese economy, assumed a very defensive attitude during the long stagnation after the burst of the bubble and deflation. Such a defensive attitude started in the early 1990s under pressure from the persistence of unprofitable excess assets after the burst of the bubble, and it was drastically strengthened and structuralized in the shock of the financial crisis in the late 1990s. Such structuralized defensiveness has a self-reinforcing nature, whether due to an excessively defensive mindset or to rational choice. Restraint on investment tends to lower growth rate, and therefore, further restraint on investment may be justified. Restraint on labor costs tends to lower consumption, and therefore, resultant stagnation in sales and profits may well justify further restraint on wages. Furthermore, restraint on investment and labor costs could lead to deflation, rewarding risk avoidance (cash holding brings return). Repeated use of fiscal stimuli to support weak growth resulting from the defensive attitude of companies aggravated the fiscal position, and may have raised anxiety for the future of households, thus strengthening defensive behavior of households. Expectation of population decline exists as an additional source of concern for both companies and households. Through all these channels, the Japanese economy has been led to an equilibrium governed by low-growth expectation and wariness about the future.

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Copyright information

© The Author(s) 2018

Authors and Affiliations

  1. 1.Tokyo Woman’s Christian UniversityTokyoJapan
  2. 2.University of TokyoTokyoJapan

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