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Japan’s Catching-Up Process

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Part of the Contributions to Economics book series (CE)

Abstract

Japan was the first of the East Asian countries that succeeded in joining the club of advanced economies, and the Japanese development strategy has provided important lessons for other East Asian countries. This Chapter traces the history of Japan’s development from the Middle Ages to modern times. In this way, it aims to uncover the historical background and mainly the drivers of the development process in Japan since the World War II. Among others, this Chapter discusses the driving forces of Japan’s high-growth period and the subsequent transition toward a “period of stable growth”. It also investigates in detail the underlying causes that led to the “Lost Two Decades” and evaluate the success of the “Abenomics” reforms that started in 2012.

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Fig. 2.1
Fig. 2.2

Source Okazaki and Korenaga (1999), own calculations. Note “automatic foreign exchange allocation” (AFA) goods are not taken into account

Fig. 2.3

Source Kiyota and Okazaki (2016), Table 1. Note Between April 1964 and October 1969, the liberalization rate stayed at 93%, therefore, we do not list the in-between data points for this period

Fig. 2.4

Source Statistics Bureau of Japan (2021). Note Nominal; year-over-year percentage change

Fig. 2.5

Source World Bank (2021)

Fig. 2.6

Source Economic Research Division, Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org), accessed 21 May 2021

Fig. 2.7

Source OECD (2010), “Main Economic Indicators—complete database”, Main Economic Indicators (database), https://doi.org/10.1787/data-00052-en. Notes Growth rate of the consumer price index of all items in Japan, index 2015 = 100, quarterly, not seasonally adjusted

Fig. 2.8

Source Board of Governors of the Federal Reserve System (US). Note The vertical lines indicate the main unconventional monetary policy measures. The shaded areas mark the three different phases of unorthodox monetary policy

Fig. 2.9

Source Economic Research Division, Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org), accessed 21 May 2021

Notes

  1. 1.

    It can also be distinguished between the view of Western scholars (“foreign view”) and of Japanese scholars.

  2. 2.

    Even though this rate could vary from han to han.

  3. 3.

    The Bamboo Curtain refers to the political demarcation between the capitalist, non-communist countries in East Asia, South East Asia, and South Asia (e.g. Japan, Indonesia, and India) and communist countries in East Asia (e.g. China). The name is related to the Iron Curtain.

  4. 4.

    Important events of 1955 include the creation of the Liberal Democratic Party (LDP) as a merger of the Japan Democratic Party and the Liberal Party, as well as the new system of wage bargaining between unions and employers called “Shunto” (Spring Offensive), which took place every year in spring.

  5. 5.

    In 1956, the Economic Whitepaper of the Economic Stability Board also officially announced that Japan was “no longer in a postwar reconstruction period” (cf. Hamada and Kasuy 1992).

  6. 6.

    Named after Japan’s legendary first emperor.

  7. 7.

    In Japanese mythology, Iwato is a cave in which the Sun Goddess Amaterasu hid herself (thus depriving the world of light) until a group of deities lured her out of her seclusion (Kosai 1986).

  8. 8.

    Kosai (1986) argues that the Iwato boom was much more durable than the Jimmu boom since during the latter, the production capacity could not keep pace with the demand effects of plant and equipment investments. In contrast, during the Iwato boom, demand and supply were much more in equilibrium and the government used prudent monetary policy that eventually allowed the prolongation of the economic expansion.

  9. 9.

    It has to be noted that the Income Doubling Plan was more like a blueprint that did not specify instruments to achieve it (Hamada 1996).

  10. 10.

    The period between 1966 and 1969 is sometimes also referred to as the Izanami period (in the sense that it was “the best period since Izanami” which was the goddess that according to Japanese mythology together with Izanagi created the Japanese archipelago (Hamada 1996).

  11. 11.

    Between 1956 and 1958, the output of black-and-white television sets increased by more than 333% to one million. Also, washing machines reached the one million mark in 1958 (cf. Kosai 1986).

  12. 12.

    When Japan joined the IMF and the World Bank in 1952, Japan also had to enter the so-called Bretton Woods system, which meant that the exchange rate had to be kept largely constant to the US dollar (with only minor adjustment options).

  13. 13.

    See also Wagner (2010).

  14. 14.

    For an overview of the land tax reform in Japan, see also Ishi (1991).

  15. 15.

    A wordplay, making reference to the UN “peace-keeping operations” (cf. Grimes 2018: 153).

  16. 16.

    See also the Bank of Japan’s homepage for an overview (BOJ, https://www.boj.or.jp/en/mopo/outline/cfc.htm/). The uncollateralized overnight call rate was the Bank of Japan’s main policy target after the temporary end of the quantitative easing policy in the 2000s (cf. Vollmer and Bebenroth 2012).

  17. 17.

    Time series FM08’FXERM09 US.Dollar/Yen Central Rate, Average in the Month, Tokyo Market.

  18. 18.

    Homepage of the Prime Minister of Japan and His Cabinet, online available at: http://japan.kantei.go.jp/keizai/index_e.html.

  19. 19.

    The BOJ reverted to the medium- to long-term price stability which (since March 2006) was defined as a positive range of 2% or lower with a midpoint of around 1% (Shirai 2013; Montgomery and Volz 2021).

  20. 20.

    Cf. the Statistics Bureau of Japan, https://www.stat.go.jp/english/data/shugyou/index.html.

  21. 21.

    Moreover, only around 10% of seats in the House of Representatives are filled by women. Shortly after it was announced that of the 21 members of the new Suga Cabinet, only 2 were women, Tomomi Inada described the Japanese politics as a “democracy without women” (see McCurry 2020).

Abbreviations

AA goods:

Automatic Approval System goods

ADB:

Asian Development Bank

AFA goods:

Automatic Foreign Exchange Allocation goods

BOJ:

Bank of Japan

CAB:

Current Account Balances

CBPP:

Covered Bond Purchase Program

CPI:

Consumer Price Index

DPJ:

Democratic Party of Japan

ECB:

European Central Bank

ETF:

Exchange Traded Fund

FA goods:

Foreign Exchange Allocation System goods

FEB:

Foreign Exchange Budget

FED:

Federal Reserve

FEFTCL:

Foreign Exchange and Foreign Trade Control Law

FI:

Financial Institution

FRC:

Financial Reconstruction Commission

FSA:

Financial Supervisory Agency

GATT:

General Agreement on Tariffs and Trade

GHQ:

General Headquarter

GNP:

Gross National Product

IMF:

International Monetary Fund

IPSS:

National Institute of Population and Social Security Research in Japan

JGB:

Japanese Government Bond

J-REIT:

Japan Real Estate Investment Trust

LDP:

Liberal Democratic Party

LTCB:

Long-Term Credit Bank

MBS:

Mortgage-backed securities

MHLW:

Ministry of Health, Labor, and Welfare

MITI:

Ministry of International Trade and Industry

MOF:

Ministry of Finance

NCB:

Nippon Credit Bank

NGB:

National Government Budget

NIRP:

Negative Interest Rate Policy

NPL:

Non-performing Loan

OECD:

Organisation for Economic Co-operation and Development

OPEC:

Organization of the Petroleum Exporting Countries

PCB:

Project Cost Basis

PKO:

Price-Keeping Operations

QE:

Quantitative Easing

QQE1:

First round of “Quantitative and Qualitative Easing”

QQE2:

Second round of “Quantitative and Qualitative Easing”

R&D:

Research and Development

SCAP:

Supreme Commander of Allied Powers

SOE:

State Owned Enterprises

TFP:

Total Factor Productivity

UK:

United Kingdom

UN:

United Nations

USA:

United States of America

VAR:

Vector Autoregression

ZIRP:

Zero Interest Rate Policy

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Glawe, L., Wagner, H. (2021). Japan’s Catching-Up Process. In: The Economic Rise of East Asia. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-87128-4_2

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