Reversal of Fortune: Macroeconomic Policy, International Finance, and Banking in Japan



IEEP                                                                                 1

DOI 10.1007/s10368-005-0042-0 JrnlID 10368_ArtID 42_Proof# 1 - 29/07/2005     2

Gary R. Saxonhouse . Robert M. Stern                                     4

Reversal of fortune: Macroeconomic policy, 5

International Finance, and Banking in Japan 6

© Springer-Verlag 2005                                                                     9

Abstract This paper provides an introduction and overview for this Symposium. 10

1 Introduction                                                                  11

During the past 50 years no major, industrialized, high-income country has suffered    12

a more remarkable reversal of economic fortune than has Japan since 1989. Japan’s    13

potential per capita real rate of GDP growth which was viewed as 4% during the    14

1980s is now seen as a little better than 1-1/2% (OECD 2005). The Bank of Japan    15

once seen as sure footed model for central banks for having insulated Japan from    16

economic impact of the 1979 Iranian Revolution and the 1987 equity markets    17

meltdown is now viewed as clumsy (Ito 1992; Ahearne et al. 2002). In the most   18

stunning reversal of perception of all, Japan’s banks once viewed as skilled    19

practitioners of relationship banking are widely viewed today as artifacts of by-    20

gone era of protective regulation. Their future as financial intermediaries in the    21

Japan of tomorrow remains suspect.                                              22

The papers in this Symposium seek to shed new light on this reversal of   23

Japan’s economic fortunes even as they also make new proposals to speed   24

Japan’s recovery.1                                                                       25

G. R. Saxonhouse (*) . R. M. Stern

University of Michigan, Ann Arbor, USA

1 These papers were originally presented at a pre-conference meeting in Tokyo in May 2004 and
in a conference at the University of Michigan in October 2004. The program of research was
sponsored jointly by the University of Michigan and the Hitotsubashi University. Funding was
provided by the Japan Foundation, Center for Global Partnership, the Economic and Social
Research Institute, Cabinet Office, Japan, the Center for Japanese Studies of the University of
Michigan, and the 21st Century COE Program, Research Unit for Statistical Analysis in the
Social Sciences, Hitotsubashi University.



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