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PolicyIssuesRegardingtheJapaneseEconomythe
GreatRecession,Inequality,BudgetDecitandtheAging
Population
YUTAKAHARADA
JapaneseJournalofPoliticalScience/Volume13/SpecialIssue02/June2012,pp223253
DOI:10.1017/S1468109912000059,Publishedonline:01May2012
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YUTAKAHARADA(2012).PolicyIssuesRegardingtheJapaneseEconomytheGreat
Recession,Inequality,BudgetDecitandtheAgingPopulation.JapaneseJournalofPolitical
Science,13,pp223253doi:10.1017/S1468109912000059
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Japanese Journal of Political Science 13 (2) 223253 C
Cambridge University Press 2012
doi:10.1017/S1468109912000059
Policy Issues Regarding the Japanese
Economy the Great Recession, Inequality,
Budget Decit and the Aging Population
YUTAKA HARADA
Professor, Waseda University
yutaka.harada@aoni.waseda.jp
Abstract
During 198090, Japans annual real GDPgrowthrate was 4.6%, but whichdeclined
to 1.2%inthe 1990s. While the drop initself is a problem, at the same time it exacerbated
many other problems, namely inequality, budget decits, and the increasing burden of
an aging society.
Society is not concerned about income distribution when the economy is
growing, but begins to worry about inequality when an economic slump shows no signs
of ending. Moreover, prolonged recession magnies inequality. With the employment
situation surrounding young people worsening, there arose an inequality between
those nding jobs and those unemployed. And, the prolonged recession led to a huge
budget decit and the accumulation of government debt. Tax revenue shrank, and the
government repeatedly increased public investment in the form of economic stimulus
measures, but the Japanese economy did not recover in a sustained fashion.
Japans lowgrowth has already continued for 20 years. Incomes of the younger
and middle-aged segments of the population have not increased. Additionally, Japan is
an aging society. The aged need pensions, and medical treatment and care, costs which
must be borne by younger and middle-aged segments of the population, in fact those
who have not experienced Japans prosperous times.
This paper discusses issues relating to the Great Recession, inequality, and the
budget decit and burden of an aging population.
Japans Great Recession is basically explained by monetary shocks. Just the
bubble and its bursting are not solely responsible for the prolonged slump. There is
no empirical evidence for the assertion that certain structural problems lessened the
efciency of the Japanese economy in the 1990s. TFP (total factor productivity) in the
1990s did not decline compared with the early 1980s. Fiscal policy and the diminution
of the nancial intermediary function can only explain the Great Recession in small
part.
The absence of any real monetary policy hampered economic growth
through the channels of stock prices and improvement in bank balance sheets. Using
223
224 yutaka harada
vector autoregressive models, the exchange rate was not found to be an important
channel of monetary policy, but there is some evidence that it signicantly affected
output.
On inequality problems, that among younger generations is important since
it will increase inequality in the future. Japans economy will stagnate for a long time if
the young are not employed and cannot garner skills.
Another important point is that the way of maintaining social stability and
alleviating inequality in Japan is extremely inefcient. To construct useless dams, roads,
ports, and airports is extremely costly just to give jobs to the unemployed. It would be
much better to give direct assistance to those in need.
There is some reason to think that a budget decit is not so serious a problem
as generally believed, and that the important thing is to cut wasteful government
expenditure and not raise government revenue. While I admit this argument carries
some weight, there is nevertheless good reason to think that it is necessary to reduce
the budget decit.
Before the global nancial crisis, Japans budget decit was controlled,
and declining, but subsequently became uncontrollable. Additionally, and more
importantly, an aging population demands more social security expenditure, which
causes serious budget problems, but Japan does not seem ready to cope with such
problems.
The selection of these topics is subjective, but I believe that these are reected
in the Japanese concerns now. Japanese academic circles do not necessarily respond to
the interests of the society, but I have tried to select papers on these topics to the extent
possible.
Introduction
Japans annual real GDP growth rate sharply declined in the 1990s. While
the drop in itself is a problem, at the same time it exacerbated many other
problems, namely inequality, budget decits, and the increasing burden of an aging
society.
Society is not concerned about income distribution when an economy is growing
but begins to worry about inequality when an economic slump shows no sign of
ending. Actually, the employment situation surrounding young people worsened
because of the prolonged recession, causing inequality among them. The ratio of
cumulative Japanese government bonds (JGBs) outstanding to nominal GDP was
37% in 1990, and, more importantly, the ratio was declining, but it is now 134%,
and is the worst among OECD countries. The budget decit and rise in cumulative
JGBs outstanding was caused by the prolonged recession. Tax revenue shrank and the
government repeatedly increased public investment as economic stimulus measures,
but the economy did not recover in a sustained fashion. As a result, Japan saw huge
decits.
policy issues regarding the japanese economy 225
Japans low growth has continued for 20 years, which is variously termed the
Lost Decade,
1
the Great Recession, and Great Stagnation. Incomes of the younger and
middle-aged segments of the population did not increase during the Great Recession.
Additionally, Japanese society is aging. The ratio of those over 65 to the total population
was 12% in 1990, but 23% in 2010, and will increase to 42% by 2070. The aged need
pensions, medical treatment, and care, costs which must be borne by younger and
middle-aged segments of the population, in fact those who have not experienced
Japans prosperous times.
This paper will cover three topics: the Great Recession, inequality, and budget
decit and the burden of an aging population. I will introduce policy discussions on
these issues, analyze them, and make policy proposals.
This selection of issues depends on my judgment, and is therefore not objective,
but I believe the selection reects the Japanese concerns now.
1. What caused the Great Recession?
2
The Japanese economy has traced an unstable recovery since the global nancial
crisis in 2008; economic growth dropped from 4.6% in the 1980s to 1.2% in the 1990s.
This decline is termed the Great Recession, but what were the causes?
3
Possible explanations
There are at least ve key arguments as to what caused the Great Recession.
(1) the bubble hypothesis a bubble and its bursting caused a long slump; (2) the
efciency shock hypothesis certain structural problems eroded the efciency of the
Japanese economy inthe 1990s; (3) the scal policy hypothesis insufcient government
expenditure impeded economic recovery (in contrast, another version of this is that too
much government expenditure hinders recovery though the so-called non-Keynesian
1
Harada, Yutaka, Nihon no Ushinawareta 10 Nen (Japans Lost Decade), Nihon Keizai Shinbunsha, 1999
2
This section partly comes from Iida, Yasuyuki and Yutaka Harada, Japans Great Stagnation: An
Interpretation using Vector Autoregression Models, submitted to ESRI International Workshop
Beginning of the New Growth in Tokyo, 3 September 2004.
3
Low interest rates in the Great Recession occasioned theoretical interest among many economists as to
how to make monetary policy effective, and produced many studies such as Krugman, P., Its Baaack:
Japans Slump and the Return of the Liquidity Trap, Brookings Papers on Economic Activity, No. 2:
137205, 1988; Svensson, Lars E. O. Escaping from a Liquidity Trap and Deation: The Foolproof
Way and Others, Journal of Economic Perspectives, 17(4): 14566, 2003; and Bernanke, B. S. and V. R.
Reinhart, Conducting Monetary Policy at Very Low Short-term Interest Rates, American Economic
Review, 94(2): 8590, 2004. Moreover, the Great Recession occasioned interest in the Great Depression
of the 1930s Japanese economists compared both, trying to nd lessons applicable to the current
situation fromthe Great Depression (called Showa Kyoukou [Showa Depression] in Japan). This paper
does not cover these studies. Refer to Ito, T. and H. Mishkin, Two Decades of Japanese Monetary and
the DeationProblem, NBERWorking Paper, No. 10878, 2004, regarding the former topic; Iwata, Kikuo
(ed.), Shouwa Kyoukou no Kenkyuu (Studies on the Shouwa Depression), Toyo Keizai Shinpousha, 2003;
and Iwata, Kikuo, Yasushi Okada, Seiji Adachi, and Yasuyuki Iida, Lessons from the Inoue Zaisei and
the Takahashi Zaisei, Keizai Ronshuu (Gakushuin University) (Gakushuin Economic Paper), 45(3) (No.
139), August 2008.
226 yutaka harada
effect); (4) the nancial systemhypothesis that a decline in nancial systemfunctions
hampered economic growth, which comes in two forms: one is that non-performing
assets lessened the ability of banks to extend loans to industry, and the other is that
non-performing loans forced banks to extend loans to inefcient industries; and (5)
the monetary policy hypothesis where insufcient monetary expansion caused the
slump.
Authors whoexamine the Great Recessionusually discuss most of these hypotheses.
Books on the subject cover all or most of the hypotheses.
4
Below, I discuss these explanations, excluding some as I go, focusing on others,
and explore other avenues.
Can the bubble and its subsequent bursting explain the Great Recession?. Many
Japanese economists attribute Japans Great Recession to the bubble its subsequent
bursting, and nancial crisis, but many countries have experienced bubbles, their
subsequent bursting, and nancial crises. No country, however, has experienced such
prolonged stagnation as Japan.
Based on extensive data collection, Reinhart and Rogoff examined the Big Five
severe nancial crises and 13 milder nancial crises among advanced countries since
World War II (the Big Five are Spain in 1977, Norway in 1987, Finland in 1991,
Sweden in 1991, and Japan in 1992, and milder cases are the UK in 1974, 1991, and
1995, Germany in 1977, Canada in 1983, the US in 1984, Iceland in 1985, Denmark in
1987, New Zealand in 1987, Australia in 1989, Italy in 1990, Greece in 1991, and France
in 1994).
5
Figure 1 shows the growth rates of real GDP before and after the respective crises of
the average of 13 milder crisis-hit countries and the Big Five. The Big Five countries are
divided into the average of three Scandinavian countries in 1987 or 1991, Spain in 1977,
and Japan in 1992. In the case of Japan, ve-year average growth rates after the crisis are
shown, as rates greatly uctuated. Neither the growth rates of milder crisis countries,
nor those of the Big Five, except Japan, perpetually declined after their respective crisis.
Those of the milder crisis countries did not decline, and those of three Scandinavian
countries among the Big Five recovered to the rates before their respective crisis in three
years. It took nine years for Spain to return to its growth rate before its crisis, but the
growth rate became higher. Only Japans prolonged stagnation is exceptional, and has
to be explained by factors other than the bubble and its bursting.
4
See Callen, Tim and Jonathan Ostry, Japans Lost Decade: Policies for Economic Revival, International
Monetary Fund, 2003; Iwata, Kikuo and Tutomu Miyagawa (eds.), Ushinawareta 10 nen no Shin-in ha
Nanika (What Really Caused the Lost Decade?), Toyo Keizai Shinpousha, 2003; Harada, Yutaka and
Kikuo Iwata (eds.), Defure Fukyou no Jisshou Bunseki (Empirical Analysis of Deation-Depression),
Toyoukeizai Shinpousha, 2002; Hamada, Koichi and Akiyoshi Horiuchi (eds.), Ronsou Nihon Keizai no
Kiki (Debates on the Crisis of the Japanese Economy), Nihon Keizai Shinbunsha, 2004; Saxonhouse,
Gary and Robert Stern (eds.), Japans Lost Decade Origins, Consequences and Prospects for Recovery,
Blackwell, 2004.
5
Reinhart, C. and K. Rogoff, This Time is Different, Princeton University Press, 2009, Chapter V
policy issues regarding the japanese economy 227
Figure 1 Real GDP Growth Rates Before and After the Crisis
Source: IMF, International Financial Statistics.
Note: Selection of countries and periods is based on Reinhart and Rogoff, This Time is
Different. Growth rates for Japan after crisis are 5-year average. Volatile annual growth
rates are also shown.
Was there an inefciency shock in the 1990s?. Many economists also argue that
Japans low growth rate is best explained by an efciency shock to its economy using a
growth accounting method. Hayashi and Prescotts paper is a pioneering work.
6
That
is, they assert that the Japanese economy received an inefciency shock, and that the
total factor productivity (TFP) growth rate declined in the early 1990s.
7
No economist, however, can explain what the shock was that caused GDP growth
to shrink from 4.6% to 1.2%.
8
As an exception, Hayashi and Prescott suggest that the
shock that reduced GDP growth was the change in market hours when the work week
6
Hayashi, F. and E. C. Prescott, The 1990s in Japan: A Lost Decade, Review of Economic Dynamics, 5:
20635, 2002.
7
Inui, Tomohiko and Hyeog Ug Kwen, Survey: Did the TFP Growth Rate in Japan Decline in the 1990s?,
ESRI Discussion Paper, No. 115, Economic and Social Research Institute, Cabinet Ofce; and Kwan, K.
and K. Fukao Usinawareta 10 Nen ni TFP Joshoritu wa naze Teitai sitaka? (Why did increase rate in
TFP decline in the lost decade?), in F. Hayashi (ed.), Keizai Teitai no Genin to Seido (Reasons behind
Economic Stagnation and Systems), Keiso Shobo, 2007.
8
Some argue that anincrease inpublic investment andextending loans toinefcient rms are inefciency
shocks, but these cannot explain the Great Recession. This is discussed in detail in Sections 1.4 and 1.5.
228 yutaka harada
Figure 2 Real GDP and Real GDP per Labor Hour
Sources: Cabinet Ofce, Ministry Health, Labor and Welfare.
Notes: 1) total labor hours = workers by industries labor hours by industries
2) 2008 is estimated by MHLW data.
was reduced from 44 hours to 40 hours by law in the early 1990s. Their assertion might
be right for the early 1990s, but not after the mid-1990s. The shortening of labor hours
might have reduced economic growth and the level of real GDP in the early 1990s, but
not after that.
If we look at real GDP per working hour instead of ordinary real GDP, we see a
different picture. Figure 2, originally formulated by Bosworth and Jorgenson, shows
real GDP per working hour and real GDP (both are indexed at 1990 =100).
9
While real
GDP growth has declined sharply since the 1990s, real GDP per working hour has not
signicantly declined.
More careful growth accounting studies that consider capital utilization and other
factors also support the contention that GDP per working hour did not decrease.
After intensive surveys, Inui and Kwan and Kwan and Fukao
10
concluded that the
decelerating increase inTFPinthe 1990s is rather smaller thanthat giveninHayashi and
Prescott.
9
This gure was originally usedby Dr. Barry Bosworthof the Brookings Institutionandby Professor Dale
W. Jorgenson at the International Forum, organized by the Economic and Social Research Institute,
Japan, 1719 February 2003.
10
Inui and Kwan, Survey and Kwan and Fukao, Why did increase rate in TFP decline in the lost decade?.
policy issues regarding the japanese economy 229
Among 15 studies (Inui and Kwan, and Kwan and Fukao, and I added Motohashi
11
),
for example, Motohashi, Nakajima et al.,
12
Inui, Kawai and Miyagawa,
13
Jorgenson and
Motohashi,
14
and Kawamoto
15
showthat TFP has not signicantly declined. Kawamoto
shows that TFP did not change. Nakajima et al., Motohashi, and Jorgenson and
Motohashi show that TFP increased, and Fukao et al. show that TFP declined only
slightly in the 1990s. If TFP does not decline, then labor productivity, that is GDP per
working hour, does not decline much either.
Additionally, and more importantly, the point about the Great Recessionis not that
the growth rate of real GDP declined in the 1990s compared to the 1980s, but that the
real economic growth rate declined in the 1990s compared to the rst half of the 1980s.
The latter half of the 1980s is a bubble period and the growth rate was high, therefore
such a high growth rate in the bubble period should be excluded fromthe comparison.
There is no study showing that TFP growth in the 1990s signicantly declined from
1980 to 1985. Fukao et al. and Hayashi and Prescott compare TFP growth in 198391 with
that in 199198 (or 19912000), that is comparing growth in the bubble period with
that in the post-bubble period. It is natural that the growth rate in the bubble period
should decline afterwards. This is a common phenomenon observed in countries that
experienced nancial crises listed in Section 1.1. Japans problem is that the growth rate
after the bubble period did not return to the normal rate seen in the early 1980s.
Most of the above studies do not showTFP growth over ve years, but three studies
do. As summarized in Table 1, Motohashi shows that TFP growth in 198085 was 0.60%,
but in 19952000 was 0.74%. Miyagawa (The Lost Decade
)16
shows TFP growth in 1981
85 was 0.75%, but in 199199 was 0.83%. Miyagawa (Economics of Productivity)
17
also
shows that TFP growth in 198085 was 0.80%, but in the 1990s was 0.30%. Actually, the
TFP growth rate did not signicantly decrease in the1990s compared to the rst half of
11
Motohashi, Kazuyuki, Nihon Keizai no Jouhouka to Seisannsei ni Kansuru Beikoku tono Hikaku
Bunseki (Information Orientation and Productivity of the Japanese Economy: AComparative Analysis
with the US), RIETI Discussion Paper Series 02-J-018, 2002.
12
Nakajima, Takanobu, Soukyu Kasuya, Tomomi Saida, and Tomoki Tanemura, Sekutaa Betsu Seisansei
Henka no Bunseki to Kouzou Henka no Kenshou (Analysis of Productivity Change by Industrial Sector
and Evidence of Structural Change), Working Paper Series, Bank of Japan, January 2001
13
Fukao, K, T. Inui, H. Kawai, and T. Miyagawa Sectoral Productivity and Economic Growth in Japan,
197098: An Empirical Analysis Based on JIP Database, ESRI Discussion Paper, No. 68, 2003.
14
Jorgenson, D. W. and K. Motohashi, Information Technology and the Japanese Economy, Journal of
the Japanese and International Economies, 19: 46081, 2005.
15
Kawamoto, Takuji, What Do the Puried Solow Residuals Tell Us about Japans Lost Decade?, Bank of
Japan IMES Discussion Paper Series, no.2004-E-5, Bank of Japan, Tokyo, 2004.
16
Miyagawa, Tsutomu, Ushinawareta 10 nen to Sangyou Kouzou no Tenkan (The Lost Decade and
Transformation of Industrial Structure), in Iwata and Miyagawa (eds.) What Really Caused the Lost
Decade?
17
Miyagawa, Tsutomu, Seisansei no Keizaigaku (Economics of Productivity), Bank of Japan Working
Paper Series, No. 06-J-06, March 2006.
230 yutaka harada
Table 1. TFP Growth Rates
Period Motohashi (2002) Miyagawa (2003) Miyagawa (2006)
1980/ 8190 1.63 1.25
80/ 185 0.60 0.75 0.80
85/ 690 1.52 2.51 1.70
1990/ 199/ 2000 0.83 0.30
90/ 195 0.57 0.56 0.04
95/ 699/ 2000 0.74 1.18 0.64
the 1980s.
18
Hence, an efciency shock cannot be a valid factor in explaining the Great
Recession.
Japan must have received positive efciency shocks from the end of the 1980s to early
1990s. I do not intend to assert that the Japanese economy doesnt harbor structural
problems that lower its efciency, for it certainly does. Japans economy is a dual
economy. The export-manufacturing sector, which accounts for only about 20% of
GDP, enjoys high productivity, but a feature of other sectors is low productivity. The
point is that Japan had structural problems not only in the 1990s but also in the 1980s.
Additionally, Japan had already pursued very substantial structural reforms that
imparted a positive efciency shock on the Japanese economy leading up to the 1990s.
Major public corporations, that is NipponTelegraphand Telephone and JapanNational
Railways, were privatized in 1985 and 1987, respectively.
Moreover, income and corporate taxes were reduced dramatically before the early
1990s, while a consumption tax was introduced in 1989 and the rate increased in 1997.
The ratio of income tax and corporate tax revenue to GDP was 21.9%in 1990, but 17.3%
in 2000. Social security contributions increased, but overall taxation/social security
contributions were reduced in the 1990s. The ratio of income tax + corporate tax +
social security contributions to GDP was 30.8% in 1990, but 27.7% in 2000 (National
Accounts, Economic and Social Research Institute, Cabinet Ofce).
If structural reform was important, tax reduction was an essential structural
reform. The huge tax reduction, including the marginal tax rate cutthe maximum
income tax rate was reduced from80%(includes local tax) in 1987 to 50%in 1997, while
the consumption tax rose to 5% in 1997 should have had a big positive impact on the
Japanese economy, but we have yet to see that impact.
Did insufcient scal stimulus cause the Great Recession?. There are some
economists who assert that insufcient government expenditure impedes economic
18
The difference between Miyagawa, The Lost Decade and Miyagawa Economics of Productivity, does
not seem important, and can be explained by difference in capital utilization adjustment methods and
slight differences in estimation periods.
policy issues regarding the japanese economy 231
recovery. Japan expanded public investment in the early 1990s and at the end of the
1990s, but could not achieve sustainable growth. Using vector autoregression (VAR)
models, Kallra
19
and Ihori et al.
20
conclude that scal policy was ineffective in the
1990s while Kuttner and Posen
21
assert that it was effective. The results of Posen and
Kuttner, however, are obtained from annual data including the bubble period, and are
not applicable to the 1990s. Additionally, from 2002 to 2007, Prime Minister Koizumis
administration consistently reduced public investment, but the Japanese economy grew
at 2%, the highest ve-year average rate after 1990.
Still, some economists
22
argue that depression in 1998 was caused by a scal
contraction of 13 trillion yen (an increase in consumption tax and social security
contributions, and a decrease in public investment), which is 2.6% of Japans GDP, but
1998 saw a nancial system shock (big nancial companies such as Sanyo Securities,
The Hokkaido Takushoku Bank, and Yamaichi Securities went bankrupt in November
1997, and the Long-Term Credit Bank of Japan and The Nippon Credit Bank went
bankrupt in October and December 1998, respectively) and the Asian nancial crisis
(the Asian currency and nancial crisis occurred in 1997 and the aftermath continued
into 1998). Fiscal contraction was pursued in 1997, but real economic growth that
year was 1.6%, and in 1998 minus 2.0%. The timing did not synchronize with scal
contraction.
Additionally, Matsuoka
23
pointed out that the Bank of Japan (BOJ) made available
4 trillion yen in special loans (this is borrowed reserves) to the bankrupt nancial
institutions and at the same time reduced unborrowed reserves by 4 trillion yen
in November 1997 by market operation. The 4 trillion yen borrowed reserves for
bankrupt nancial institutions do not contribute to credit creation, and actually, by
doing so, BOJ decreased the active monetary base by 4 trillion yen in the middle
of the nancial crisis. The recession in 1998 was caused by unintended monetary
contraction.
At least, we can say that the recession in 1998 was not only caused by scal
contraction, but also a nancial system shock, the Asian currency and nancial
crisis, and unintended monetary shrinkage by BOJ. Thus, the scal factor by itself
cannot be seen to be the most important factor in explaining the depression in
1998.
19
Kalra, Sanjay, Fiscal Policy: An Evaluation of Its Effectiveness, in Callen and Ostry, Japans Lost Decade.
20
Ihori, Toshihiro, Toru Nakazato, and Masumi Kawade, Japans Fiscal Policies in the 1990s, in
Saxonhouse and Stern, Japans Lost Decade Origins.
21
Kuttner, Ken and Adam Posen, The Great Recession: Lessons for Macroeconomic Policy from Japan,
Brookings Papers on Economic Activity, No. 2, pp. 93185, 2001.
22
For example, Yanba, Y. Tyouki Teitaiki ni okeru Zaisei Seisaku no Koka ni tsuite (On the effect of
scal policy in the period of long stagnation), in Hamada and Horiuchi, Debates on the Crisis of the
Japanese Economy.
23
Matsuoka, M. Daremo Shiteki shinai Ito sezaru Kinyu Hikishime (Unintended monetary contraction
that nobody points out), The Daiyamondo, 8 July 2000.
232 yutaka harada
To the contrary, some economists argue that too much government expenditure
hinders recovery though the so-called non-Keynesian effect, which asserts that
government expenditure decreases private expenditure by more than government
expenditure when the budget decit is large, and that government expenditure reduces
the efciency of the Japanese economy. Most literature, however, is skeptical about the
non-Keynesian effect. Kameda
24
concludes, after surveying several preceding studies,
that consumption increases when large-scale budget restructuring is affected, but not
when small-scale restructuring is affected. And the effect does not occur solely because
of a big budget decit or high level of government debt.
It is true that too much government expenditure reduces efciency, but cumulative
public investment increased by only 89 trillion yen from the 1990s and early 2000s.
Public investment from 1991 to 2002 was larger than 1990, and after that period was
smaller than in 1990. The cumulative difference from 1991 to 2002 was 89 trillion yen,
but Japans public capital stock was 316 trillion yen, and private capital stock excluding
residential stock was 1,030 trillion yen, and thus totally Japans capital stock was 1,346
trillion yen in 2000.
25
Capital stock would have decreased by only 6.6% (= 89/1346)
even if the public investment of 89 trillion yen had been completely useless and all
89 trillion yen had been invested in useful private purposes, though this assumption
does not seem very plausible. Thus, the real GDP level would be lower by only 2.2% in
2000.
26
That means that the 1.2%GDP growth rate in the 1990s could have been 1.4%if
it were not for inefcient public expenditures. This then cannot be an important factor
in explaining the Great Recession.
Did a decline in nancial intermediary function signicantly reduce the growth rate?.
Some economists argue that the huge non-performing loans (NPLs) of Japans banking
system in the early 1990s were responsible for the Great Recession. There are two
reasons. One is that NPLs eroded bank capital, and banks could not expand loans,
which reduced the growth rate of the economy. I call this hypothesis the credit crunch
hypothesis. The other reason is that banks continuously extended loans to the very
companies that created NPLs in the hope that the problem would eventually somehow
go away. This means that to extend loans to inefcient rms makes the whole economy
inefcient, and may cause the Great Recession. I call this hypothesis expanded loans
to low-return-company hypothesis.
24
Kameda, K., Nihon ni okeru hi keinzu koka no hassei kanosei (Possibility of Occurrence of Non-
Keynesian effect in Japan), in Ihori, T. ed. Zaisei Seisaku to Shakai Hosho (Fiscal Policy and Social
Security), University of Keio Press, 2009.
25
Private capital stock and xed assets of general government, System of National Accounts, Cabinet
Ofce. Private capital stock at 2000 prices, xed assets of general government at nominal gures, but
this rough calculation does not produce any signicant difference.
26
Assuming an ordinary CobbDouglas function, GDP = AL
0.7
K
0.3
, GDP decreases by 2.2% (1(1
0.066)
0.3
=0) because of a decline of 6.6% (=89/1346) in K.
policy issues regarding the japanese economy 233
With respect to the credit crunch, Miyao
27
concludes, after surveying several
studies, that in the rst half of the 1990s the effect was limited with a credit crunch
being seen in some sectors of the economy, and that only in 199798 was there a credit
crunch which affected the economy overall. Woo,
28
Horie,
29
and Fukao
30
show that
there was a credit crunch in 1997 and 1998. Woo points out that a credit crunch was
not observed in the rst half of the 1990s, only in 1997, and Horie could not nd any
results in data that suggested there was a credit crunch for 1992. They also found that
a credit crunch might be experienced by big banks, not small ones, which suggest that
the credit crunch was not serious for small and medium-sized companies that borrow
from small banks.
Japan has various public nancial institutions supporting small companies, such
as Japan Finance Corporation for Small and Medium Enterprise and the National Life
Finance Corporation (both merged to form Japan Finance Corporation in 2008), and
also system infrastructure, such as credit guarantee corporations, in all prefectures,
which especially extend loans to small companies in a recession when a credit crunch
might occur. While these entities might make the economy inefcient in the long run,
in the short run they support it and mitigate the adverse effects of recession.
Onthe other hand, Sakuragawa,
31
Kobayashi et al.,
32
Sugihara andFueda,
33
Sugihara
andOta,
34
andHosonoandSakuragawa
35
showthat banks expandedloans tocompanies
withlowreturns, a highratioof non-performing assets (NPAs) tototal assets, anda high
debt to assets ratio in the 1990s, which suggests they extended loans to non-protable
rms.
27
Miyao, Ryuzou, Ginko Kino no Teika to 90 Nendai Iko no Defure Teitai (Declining function of banks
anddeationary stagnationsince 1990s), inHamada andHoriuchi, Debates onthe Crisis of the Japanese
Economy.
28
Woo, D. In search of capital crunch: supply factors behind the credit slowdown in Japan, IMF Working
Paper 99/3, 1999.
29
Horie, Y. Waga Kuni no Kashi Shiburi Bunseki (Analysis of Japans Credit Crunch), Keizaigaku
Kenkyu, 65(6): 131, University of Kyushu, 1999.
30
Fukao, Mitsuhiro and Japan Center for Economic Research, Kinyu Fukyo no Jisshou Bunseki (Empirical
Analysis of Depression), Nihon Keizai Shinbunsha, 2000.
31
Sakuragawa, M. Kinyu Kiki no Keizai Bunseki (Economic Analysis on Financial Crisis), The University
of Tokyo Press, 2002.
32
Kobayashi, K., T. Saida, and T. Sekine Iwayuru Oigashi ni tsuite (On so-called Extending Loans to
Non Protable Firms), Working Paper 0202, Bureau of Research and Statistics, Bank of Japan, 2002.
33
Sugihara, S. and I. Fueda Furyo Saiken to Oigashi (Non-Performing Debts and Extending Loans to
Non-Protable Firms), Nihon Keizai Kenkyu (Studies on the Japanese Economy), 44: 6387, 2002.
34
Sugihara, S. and T. Ota, Shisan Kakaku no Geraku to Kigyo no Baransu Shiito Chosei (Decline in
Asset Prices and Adjustment of Balance Sheets of Firms), in Harada and Iwata, Empirical Analysis of
Deation-Depression.
35
Hosono, K. and M. Sakuragawa, Soft Budget Problems in the Japanese Credit Market, Nagoya City
University Discussion Paper Series in Economics 345, 2003.
234 yutaka harada
How can we gauge the impact of extending loans to non-protable rms on
the total economy? First, we would need to know the amount of loans extended to
non-protable rms, but no study provides these data though the Financial Services
Agency has said that aggregate NPLs written off from1992 to 2008 were 99 trillion yen
these were mainly created in the bubble period through the extension of loans to rms
which later become unprotable. If loans to non-protable rms totaled 99 trillion
yen and assuming that loans to non-protable rms conducted in the 1990s were, say,
one-third of the 99 trillion yen (I think most non-performing loans were created in the
bubble period), then the Japanese economy lost 33 trillion yen in normal investment in
the 1990s.
As I already mentioned in Section 1.4, however, Japan had total capital stock of
1,346 trillion yen in 2000. Even if the 33 trillion yen in loans had been utilized for
completely useless purposes, capital stock would only have been reduced by 2.5% ( =
33/1346). This means that real GDP would be lower by only 0.8%,
36
which translates
into the 1.2% GDP growth rate of the 1990s being 1.3% if inefcient loans had not been
the case. This also cannot be an important factor explaining the Great Recession.
Was monetary policy important?. The Great Recession occurred simultaneously
with deation since deation causes stagnation through various channels, and is
itself caused by monetary contraction. I thus think monetary policy is important
in explaining the Great Recession.
Additionally, unemployment increased from 2.5% in 1990 to 5% in 2000. During
this period, the labor market could not have become inefcient because nominal wage
rigidity was partly destroyed at the end of the 1990s, and rms could begin to hire labor
exibly such as through temporary employment agencies or from contract agencies.
Thus, the Great Recessioncanperhaps be explainedby a decline inthe utilizationof then
existent labor and production facilities. Monetary policy can stimulate an economy in
such a situation.
There are many studies that analyze the effects of monetary policy in the 1980s,
1990s, and 2000s by using vector autoregression (VAR) models. In this method, the
effect of monetary policy, scal policy, anddecline of nancial functions canbe analyzed
simultaneously.
Before introducing the studies, Figure 3 shows industrial production, loans, and
monetary base, which a central bank can directly control. On monetary base, the
Figure shows two kinds of monetary base series. One is usual series. The other is series
excluding special BOJ loans to avoid nancial systemic risks based on BOJ Law Article
38 to extend assistance to bankrupt banks or those going bankrupt, because these loans
do not create credit. Industrial production seems to have moved in a similar way to
loans and monetary base until the end of the 1990s, but after that production diverged.
36
Assuming an ordinary CobbDouglas function, GDP = AL
0.7
K
0.3
, GDP decreases by 0.8% (1(1
0.025)
0.3
=0) because of a decline of 2.5% (=33/1346) in K.
policy issues regarding the japanese economy 235
Figure 3 Production, Monetary base, and Bank loans
Sources: Bank of Japan, Ministry of Economy, Trade and Industry.
Notes: Monetary base excl. special loans =Monetary base - BOJ loans for avoiding nancial
systemic risk based on Article 38 of BOJ law.
All line graphs modied by smoothing.
Loans declined continuously, but production recovered in early 2000. Usual monetary
base has not moved with production in the end of 1990s, but monetary base excluding
special BOJ loans has. Of course, more careful statistical investigation is needed to
identify the importance of the above factors.
There are many studies on the effect of monetary policies during Japans Great
Recession using VAR models. Bayoumi,
37
Miyao,
38
Nakazawa et al.,
39
Baig,
40
and Iida
and Harada,
41
using VARmodels, suggest that a monetary shock might be an important
factor in explaining uctuation in the 1980s and 1990s. These studies are different in
the points they emphasize.
37
Bayoumi, Tamin, The Morning After: Explaining the Slowdown in Japanese Growth in the 1990s,
Journal of International Economics, 53: 24159, 2001.
38
Miyao, Ryuzou, The Effects of Monetary Policy in Japan, Journal of Money, Credit and Banking, 34(2),
2002.
39
Nakazawa, Masahiko, Shigeki Onishi, and Yutaka Harada, Zaisei Kinyuu Seisaku no Koka (Effect of
Fiscal and Monetary Policies), Financial Review(Journal in Japanese), Fiscal Policy Institute of Ministry
of Finance, No. 66, December 2002.
40
Baig, Tamiur, Monetary policy in a deationary Environment, in Callen and Ostry, Japans Lost Decade.
41
Iida and Harada, Japans Great Stagnation.
236 yutaka harada
Bayoumi stresses various factors such as scal policy, monetary policy, and
investment during the bubble period, and decline in the nancial intermediation
function. He thinks that a major factor was the disruption of nancial intermediation,
largely operating through the impact of changes in domestic asset prices on bank
lending. Miyao, Nakazawa et al., and Baig stress the importance of monetary policy.
Nakazwa et al. argue that both monetary policy and bank loans affect economic
stagnation.
Japanese studies using VAR models tend to stress monetary factors. It might be
agreed to some extent among Japanese economists (Miyao, for example) that monetary
policy caused the uctuations at the end of the 1980s and early 1990s. However, there is
not necessarily agreement that monetary factors are important in explaining economic
uctuations after the latter half of the 1990s.
Baig shows that additional injections of monetary base have positive impacts on
prices and activity through stock price and increase of bank loans.
Iida and Harada focus on the latter half of the 1990s and beyond, and conclude
that monetary base and real interest rates generally had a signicant effect on output.
Loans and prices, on the other hand, do not signicantly affect output. The results on
the effect of the loans are different from those of Bayoumi, which stress the impact
of the nancial intermediation function, but the estimation periods are 198698 and
19762000. Loans decreased from the mid-1990s to early 2000 (except 1999), during
which Japan experienced three economic recoveries.
Some studies focus on dynamic stochastic general equilibrium (DSGE) models.
Ahearne et al.
42
shows that BOJ was responsible for deation by delaying monetary
expansion, but Okina et al.
43
asserts that BOJ could not avoid deation. The models do
not incorporate price rigidity, nancial accelerator mechanism, expectations, and non-
traditional monetary policy, and the results do not necessarily reect the real economic
mechanism.
The exchange rate has not been noted as a monetary channel to explain the Great
Recession except by McKinnon and Ono,
44
but recently some economists have placed
considerable emphasis on the yen exchange rate as a channel of monetary policy to
affect output. Hamada and Okada show that wages and prices move rigidly, but stock
prices, including the exchange rate, move exibly, and hence the exchange rate led to
42
Miyao, Ryuzou, The Effects of Monetary Policy in Japan, Journal of Money, Credit and Banking, Vol.
34, No. 2, May 2002.
43
Nakazawa, Masahiko, Shigeki Onishi, and Yutaka Harada, Zaisei Kinyuu Seisaku no Koka (Effect of
Fiscal andMonetary Policies), Financial Review(journal inJapanese), Fiscal Policy Institute of Ministry
of Finance, No. 66, December 2002.
44
Baig, Tamiur, Monetary policy in a deationary Environment, in Callen, Tim and Jonathan Ostry,
Japans Lost Decade: Policies for Economic Revival, International Monetary Fund, 2003.
policy issues regarding the japanese economy 237
prolonged stagnation. Hori
45
shows that yen appreciation hinders Japan in exporting
to emerging Asian countries using macro export and import functions the work
shows that Japan is losing shares not only in low value-added products but also in high
value-added ones in the Asian market.
Kobayashi and Inada
46
show that increases in real wages caused by nominal
wage rigidity and deation reduced employment and growth in the 1990s. This
is an important channel by which monetary policy was responsible for the Great
Recession. This seems to be a reasonable channel of monetary policy considering
that the unemployment rate increased from 2.5% in 1990 to 5% at the end of the
1990s.
Fukuda and Owen
47
point out other channels where demand shocks drag
stagnation. Temporal demand shocks especially decrease youth employment in Japan
where existent employment is protected because of the Japanese employment system,
andhinder humancapital accumulationinthe young. This causes loweconomic growth
for long time.
As mentioned before, there is agreement that monetary policy caused the
uctuations at the end of the 1980s and early 1990s, but there is not agreement that
monetary factors are important in explaining economic uctuations after the latter half
of the 1990s, because the mechanismwhereby monetary shocks affect perpetually is not
clear. Kobayashi and Inada, and Fukuda and Owen might explain the mechanism, but
we may conclude that BOJ repeatedly give negative shocks to the Japanese economy,
judging from Figure 3.
Quantitative easing monetary policy. Thus far, I have sought to determine factors
responsible for stagnation of the Japanese economy, and I show that monetary
contraction indeed reduced the growth rate. However, BOJ expanded the monetary
base fromMarch 2001 to March 2006, that is it pursued a quantitative easing monetary
policy (QEMP). If QEMP had been effective in stimulating the economy in the
rst half of the 2000s (actually the direction was the opposite), this would have
been additional evidence that monetary contraction in the 1990s caused the Great
Recession.
45
Hori, M. Ajia no Htten to Nihon Keizai (Development of Asian and Japanese Economies), in K. Fukao
(ed.), Makuro Keizai to Sangyo Kozo (Macroeconomy and Industrial Structure), University of Keio
Press, 2009.
46
Kobayashi, Ken-ichiro and Masaru Inada, Business Cycle Accounting for the Japanese Economy, Japan
and the World Economy, 18(4), 2006.
47
Fukuda, Shin-ichi and Robert Owen, Human Capital and Economic Growth: Dynamic Implications
of InsiderOutsider Problemfor Macroeconomics, Public Policy Review, 4(1), Policy Research Institute,
Ministry of Finance, Japan, 2008
238 yutaka harada
Kimura et al.,
48
Fujiwara,
49
Mihira et al.,
50
Honda et al.,
51
and Harada and
Masujima
52
analyze the effect of QEMP on output by using vector autoregressive
(VAR) models.
Kimura et al. and Fujiwara deny the effect of QEMP on output using VAR models,
but their studies were based on data up to the early 2000s, which was too early to
conclude that QEMP was not effective on output because quantitative easing was
conducted until March 2006.
To the contrary, by using data until 2006, Mihira et al., Honda et al., and Harada
and Masujima showthat QEMP was effective. Mihira et al. do not analyze the channels
that monetary policy affects, but Honda et al., and Harada and Masujima do. Both
studies conclude that the asset price channel, that is portfolio rebalancing effect, is
important. Additionally, Harada and Masujima show that an improvement in bank
balance sheets affects output.
As for quantitative effects, Honda et al. show that monetary policy shocks account
for 41% of output volatility and 46% of stock price volatility 12 months ahead. Harada
andMasujima conclude that the monetary base explains 35%of total variance inoutput,
and more than 70% when adding the effects of the stock price, exchange rate, stock
prices of banks, and prices 24 months ahead.
Additionally, most of the above studies analyze data before the period of QEMP,
and almost unanimously conclude that monetary base (or reserves) affected output
before 2000.
Of course, a correlationdoes not necessarily meancausation. Monetary uctuation
might be a result of real economic uctuation. At least, however, in the mid-1980s,
monetary policy was intentionally expansionary. Fromthe end of the 1980s to the early
1990s, policy was also intentionally contracted in order to burst the bubble. Monetary
contraction at the end of 1997 was unintentional, but exogenous as pointed out by
Matsuoka
53
. Monetary policy in August 2000 (termination of the zero interest rate
48
Kimura, T., H. Kobayashi, J. Muranaga, and H. Ugai (2002), Effect of Increase in Monetary Base on
Japans Economy at Zero Interest Rates: An Empirical Analysis, Bank of Japan, IMES Discussion Paper
Series, No. 2002-E-22.
49
Fujiwara, I., Evaluating Monetary Policy When Nominal Interest Rates are Almost Zero, Journal of the
Japanese and International Economies, 20(3): 43453, 2006.
50
Mihira, T., N. Yamasawa, H. Seitani and J. Saito (2006), Was Quantitative Easing Policy Effective? An
Empirical Analysis of Monetary Policy in Japan during 200106, presented at ESRI (Economic and
Social Research Institute) International Conference on Changes in the Japanese Economy during the
So-called Lost Decade and Recovery.
51
Honda, Y., Y. Kuroki, and M. Tachibana (2007), An Injection of Base Money at Zero Interest Rates:
Empirical Evidence fromthe Japanese Experience 200106, Discussion Papers in Economics and Business
0708, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), Osaka
University.
52
Harada, Yutaka and Minoru Masujima, Kinyuu no ryouteki kanwa wa dono keiro de keizai wo kaizen
shitanoka, in Yoshikawa, Hiroshi, Effectiveness and Transmission Mechanisms of Japans Quantitative
Monetary Easing Policy, The Japanese Economy, 36(1): 2009.
53
Matsuoka Unintended monetary contraction that nobody points out.
policy issues regarding the japanese economy 239
policy) was intentionally contracted, and after March 2001 (quantitative easing policy)
intentionally expansionary. Thus, the criticism that correlation does mean causation
cannot be applied to the most part from the 1980s to the 2000s.
Why didnt BOJ expand money?. Then, the simple question arises as to why BOJ
didnt ease monetary policy? Why didnt BOJ conduct QEMPexcept from2001 to 2006?
Harada
54
and Fukao
55
point out that BOJ is afraid of increasing interest rates. Of course,
in the short run, QEMP or any easing monetary policy reduces nominal interest rates,
but, in the long run, raises them. QEMP stimulates the economy, leading to increases in
real output and then higher prices. As a result, nominal interest rates increase because
of economic recovery and rise in ination rate (the Fisher effect). Honda et al., and
Harada and Masujima show that QEMP results in raising long-term interest rates.
An increase in interest rates in the long run causes a decline in bond prices,
which may negatively affect the balance sheets of banks, which hold huge amounts of
bonds in the absence of borrowers. If bond prices decline, then some banks might face
serious problems. Of course, if an increase in interest rates is due to a recovery from
stagnation and deation, banks can expand loans and increase interest rates on loans,
thereby making a prot. Some banks, however, cannot wait, which BOJ is afraid of. The
situation, however, would worsen, because such banks would buy more bonds being
unable to nd borrowers amid a stagnant economic situation.
Conclusions of Section 1
Japans Great Recession is basically explained by monetary shocks. The bubble
and its bursting could not alone have caused such a prolonged slump. There is also no
empirical evidence tosupport the assertionthat certainstructural problems reducedthe
efciency of the Japanese economy in the 1990s. TFP in the early 1990s did not decline
compared to the early 1980s. And, scal policy and decline in nancial functions can
only explain the Great Recession in small part.
The absence of any real monetary policy hampered economic growth through the
channels of stock prices and improvements in bank balance sheets. Using VAR models,
the exchange rate is not found to be an important channel of monetary policy, though
there is some evidence that it signicantly affects output.
In order to escape from the Great Recession, active monetary policy was needed,
but BOJ, which is afraid of any increase in interest rates and decline in bond prices,
is reluctant to conduct aggressive monetary policy as counterparts in other countries
have already done.
54
Harada, Yutaka, Daiteitai Dakkyaku no Keizaigaku (Economics of getting rid of the Great Recession),
PHP Kenkyuujo, 2004, Chapter 6, Section 2
55
Fukao, Mitsuhiro, Japans Lost Decade and its Financial System, in Saxonhouse and Stern, Japans Lost
Decade Origins.
240 yutaka harada
2. Why is inequality a problem?
The Japanese were previously not concerned with income distribution, because
they were satised with Japans relatively high growth compared with other advanced
countries, and indeed believed Japan to be a middle class country. Prolonged economic
stagnation, however, has changed their conception of the reality, and Japanese are now
very much concerned about income distribution. While Japanese still clung to the
notion that Japan was an equal society, it became an unequal society in the 1990s.
Since the end of the 1990s, many books and papers covering this subject have been
published. Among them, Tachibanaki,
56
Sato,
57
Yamada,
58
Otake,
59
Ota,
60
Ota,
61
and
OECD
62
were noted by the public, policy makers, or academics.
Firstly, I introduce studies explaining the reasons behind growing inequality.
Among them, I will focus on those which address aging, inequality among the young,
and globalization. Secondly, I discuss whether Japan was an equal country or not.
Thirdly, I show the special nature of inequality in Japan and the countrys income
redistribution policy.
2.1 Causes of expanding inequality
Otake argues that income distribution in Japan has become unequal, but, being
caused by the aging population, it is inevitable. Income distribution among the elderly
is more unequal than among younger generations, because the incomes of the elderly
reect their life choices. Thus, average income distribution becomes unequal when a
countrys population is aging.
Figure 4 shows Gini coefcients by age groups. The Gini coefcient is an index,
which is compiled as 0 if all income is distributed equally and as 1 if one possesses
all income. According to this chart, income inequality is shrinking except for those
under 30. In particular, income inequality among the 6069 and over 70 age groups has
shrunk. The reason why average inequality of income distribution has expanded while
inequality of income distribution by age group has shrunk is that Japans population
has been aging.
Ota
63
agrees with the above argument, but points out that inequality of income
distribution in the under 30-year old group has become serious since 1990. The reason
is that, while some of them may be hired as regular employees, others are hired as only
56
Tachibanaki, T., Nihon no Keizai kakusa (Economic Inequality in Japan), Iwanami Shoten, 1998.
57
Sato, T., Fubyoudo Shakai Nihon (Japan Inequal Society), Chuou Koronsha, 2000.
58
Yamada, M., Kibo Kakusa Shakai (Inequal Society in Hope), Chikuma Shobo, 2004
59
Otake, F. Nihon no Fubyoudou (Inequality in Japan), Nihon Keizai Shinbunsha, 2005.
60
Ota, K., Furita no Zouka to Rodo Shotoku Kakusa no Zodai (Increase in Part-Time Workers and
Widening Inequality inLabor Incomes), ESRI DiscussionPaper, No. 140, Economic and Social Research
Institute, Cabinet Ofce, May 2005.,
61
Ota, K, Nihon no Shotoku Kakusa (Income Inequality in Japan), Business and Economic Review (a
Journal in Japanese), The Japan Research Institute, Limited. October 2006.
62
OECD, Economic Survey of Japan 2006, OECD, 2006.
63
Ota, Increase in Part-Time Workers.
policy issues regarding the japanese economy 241
Figure 4 Gini Coffecient by Age - Inequality increased by age
Source: Census and Statistics Department, National Survey of Family Income and
Expenditure.
Notes: Household of two or more. Data of 1979, 1984, 1989, and 1994 are simple average
of Gini coefcients by 5-year age groups. Data for those 6070 in 1979 not available.
Income distribution indexes in 2009 will be published in October 2011.
non-regular employees, or cannot nd work at all. That is, the younger generation is
divided into regular workers and part-time workers. In Japan, part-time workers are
not protected by medical, employment, and pension insurance, and their wages are
only one-third that of regular workers.
Some argue that the very nature of the young generation is the problem (these
arguments are summarized by Honda et al.
64
They argue that the younger generations
are not prepared to work, and have no sense of work ethic. The most important reason,
however, is business conditions. During 2005 to 2008, the ratio of university graduates
being hired as regular workers was higher than their counterparts before 2005 and
after 2009, because business conditions improved. Unemployment rates for the young
are higher than those for the middle-aged and older groups, but the rates move with
the trend of total unemployment. To stress the difference of young people now and
those in ten or twenty years seems misleading for adopting the proper means to solve
the problem.
Globalization is repeatedly referred to as a reason behind rising income inequality,
but in Japan there are few academic papers on the subject. Ota
65
points out that
inequality among male workers shrank or was stable until 2004. Otake
66
concludes that
64
Honda, Y., T. Uchida, and K. Goto, Niito tte Yuna (Dont say NEET), Kobunsha, 2006.
65
Ota, Income Inequality in Japan, Chart 101.
66
Otake, Inequality in Japan, Chapter 6.
242 yutaka harada
there was no rapid increase in wage inequality as in the US and UK. More directly,
Yamamoto
67
concludes that based on Basic Survey on Wage Structure (Ministry of
Health, Labor and Welfare) data, international trade does not heighten wage inequality
between skilled and unskilled workers, workers in large rms and those in small rms,
or regular and non-regular workers in Japan.
Inequality is an emotional issue, and politicians, journalists and commentators
as well as academics discuss the matter. These discussions are summarized in Toyo
Keizai.
68
Among thempoliticians are very much interested in inequality by region, and
argue reduction in public investment causes inequality. This argument is supported by
politicians elected from rural constituencies, but it is impossible and much too costly
to equalize the incomes of the regions, because the government has to help not only
the poor but also the rich in poor areas.
Ministry of Health, Labor and Welfare
69
argues that the increase in wage inequality
within regular workers and that within non-regular workers did not expand, but that
wage inequality expanded because of the increase in non-regular workers, and suggests
that deregulation causes the inequality. This argument, however, covers only wage
inequality, but not income inequality. What will happen if non-regular workers cannot
get evennon-regular work jobs? The white paper points out that wage inequality shrunk
in 2009, but this was caused by dismissal of non-regular workers because of the global
nancial crisis. The same thing will occur if jobs of non-regular workers are restricted
by regulation.
Still, the left-wing view, which includes the left group of the ruling Democratic
Party of Japan, supports regulating the labor market by interventions, suchas limitation
of non-regular work jobs or increase of minimumwages, and some economists support
the arguments (for example Tachibanaki).
70
These policies, however, will not be realized
for a while, because of DPJs defeat in the election of the House of Councilors in July
2010.
2.2 Was there equality in Japan?
Japanese for long believed equality existed in Japan, but have come to change their
concept of the reality. Indeed, the OECD
71
says Japan is not as equal when compared
to other advanced countries. The report asserts that Japans Gini coefcient is the fth
most unequal, and Japans relative poverty rate the second most unequal among 14
advanced countries.
67
Yamamoto, T., Impact of International Trade onWage InequalityinJapanese ManufacturingIndustries,
Ph.D. dissertation, University of Hawaii, 2004.
68
Toyoukeizai, Nihonjinno Mirai Kyuuryou(Future Salaries of Japanese), ShuukanToyoukeizai, 6 October
2007.
69
Ministry of Health, Labor and Welfare, Roudou Keizai Hakusho (White Paper on the Labor Economy)
2010, Chapter 3, Section 3.
70
Tachibanaki, T., Kakusa Shakai (Unequal Society), Iwanami Shoten, 2006, Chapter 5.
71
OECD, Economic Survey of Japan 2006.
policy issues regarding the japanese economy 243
Japanese society believes that inequality only recently came to the fore. Japan was
an equal country, but lately became an unequal country, and still is an equal country
among OECD countries. The OECD, however, says that Japan is unequal compared
with other advanced countries, which was unexpected, and some criticized the report
for basing its ndings on the Comprehensive Survey of Living Conditions of the People
on Health and Welfare (CSLCPHW) by the Ministry of Health, Labor and Welfare.
The survey was conducted through welfare ofces, and samples of low income groups
are captured, and there is a tendency for inequality to be exaggerated. The OECD
report depends on F orster and Mira dErcole,
72
and their study shows that other
countries use ordinary household surveys, equivalent to Japans Family Income and
Expenditure Survey (FIES) or the National Survey of Family Income and Expenditure
(NSFIE) (both conducted by the Statistics Bureau, Ministry of Internal Affairs and
Communications.
Actually, the CSLCPHW was rstly used for OECD international comparison
studies in 2005, and before that the NSFIE was used. When the NSFIE was used,
Japans Gini coefcient was ninth in terms of inequality among 19 countries in the
mid-1990s, and after using the CSLCPHW became the seventh among 22 countries in
the mid-2000s. Japans Statistics Bureau published Gini coefcients in 2004 calculated
by the NSFIE, and Japans coefcient became 27.3 instead of 31.4 as calculated by the
NSFIE, but still Japan is thirteenth in terms of inequality among 22 countries; see
Table 2 (the Gini coefcient is multiplied by 100 in the OECD report). Of course, the
effect of using the CSLCPHW was recognized, but Japan was not a very equal country
among advanced countries.
73
Scandinavian countries were and are more equal than
Japan.
Table 2 shows not only Gini coefcients, but also the P90/P10 index of OECD
countries since the 1970s. Concerning Gini coefcients, Japan was the fourth in terms
of inequality among eight countries in the 1970s, and ninth among 19 in both the 1980s
and 1990s.
Looking at P90/P10 index gures, Japan was seventh in terms of inequality among
18 countries in the 1980s, fth among 19 in the 1990s, and third among 22 in the 2000s.
The P90/P10 index is the ratio (of income) of the ninetieth and tenth percentiles when
all in a country are divided into 100.
While Japan was neither equal, nor unequal in terms of the Gini coefcient among
advanced countries, it is unequal based on P90/P10, though the gure for the 2000s is
affected by using the CSLCPHW.
72
F orster, Michael and Marco Mira dErcole, Income Distribution and Poverty in OECD Countries in
the Second Half of the 1990s, OECD Social, Employment and Migration Working Paper 22, February
2005.
73
This fact may have been rstly pointed out by Ota, Income Inequality in Japan, Table 4.
244 yutaka harada
Table 2. Changes in Income Inequality Indexes for OECD Countries
Gini coefcient P90/ P10
Most
Mid- Mid- Mid- Recent Mid- Mid- Mid- Recent
1970s 1980s 1990s years 1970s 1980s 1990s years
Australia 31.2 30.5 30.5 4.3 3.9 4.1
Austria 23.6 23.8 25.2 2.9 3.0 3.3
Belgium 27.2 3.2
Canada 29.5 28.7 28.3 30.1 4.4 3.8 3.6 3.8
Denmark 22.9 21.3 22.5 2.8 2.6 2.7
Finland 23.5 20.7 22.8 26.1 3.2 2.7 2.8 3.1
France 27.5 27.8 27.3 3.3 3.4 3.4
Germany 26.3 28.3 27.7 3.5 3.5
Greece 41.3 33.6 33.6 34.5 7.0 4.9 4.7 4.8
Ireland 33.1 32.5 30.4 4.2 4.1 4.4
Italy 30.6 34.8 34.7 3.9 4.8 4.6
Japan 27.6 27.8 29.5 31.4 3.9 4.4 4.9
(27.3)
Luxemburg 24.7 25.9 26.1 3.0 3.2 3.2
Netherland 22.7 23.4 25.5 25.1 2.6 2.7 3.1 3.0
New Zealand 27.0 33.1 33.7 3.4 4.0 4.4
Norway 23.4 25.6 26.1 2.9 3.0 2.8
Portugal 32.9 35.9 35.6 4.7 5.1 5.0
Spain 30.3 4.1
Sweden 21.4 19.8 21.2 24.3 2.6 2.4 2.5 2.8
Switzerland 26.7 3.2
United Kingdom 24.9 28.7 31.2 32.6 3.1 3.6 4.1 4.2
United States 31.7 33.8 36.2 35.7 4.8 5.5 5.5 5.4
Inequality ranking 4/8 9/19 9/19 7/22 or 7/18 5/19 3/22
of Japan 13/ 22
OECD25 average 30.9 30.8 4.2 4.2
OECD20 average 28.8 30.6 30.8 3.9 4.2 4.3
OECD18 average 27.0 28.4 29.1 3.5 3.7 3.9
Source: Michael F orster and Marco Mira dErcole, Income Distribution and Poverty in OECD
Countries in the Second Half of the 1990s, OECD Social, Employment and Migration Working
Paper 22, March 2005, Annex Table A.3.
Notes: Most recent year refers to year around 2000, except for Belgium and Spain (1995).
For Czech Republic, Hungary and Portugal, the period labelled Mid- 80s to mid- 90s refers
to that from early to mid- 90s . OECD25 average includes all countries for which data are
available for mid- 90s and 2000. OECD20 average includes all countries for which data were
available for mid- 80s, mid- 90s and 2000 and excludes Belgium, the Czech Republic, Hungary,
Poland, Portugal, Spain and Switzerland. OECD18 average excludes, in addition, Mexicoand
Turkey. OECD25 uses data for reunied Germany, OECD20 and OECD18 use data for West
Germany only. Japans data in parenthesis in recent years is feom National Survey of Family
Income and Expenditure .
policy issues regarding the japanese economy 245
Figure 5 Relative Poverty Rates of Market Incomes and Adjusted Incomes in Major
Countries
Source: OECD, Economic Survey of Japan 2006, Table 4.9.
2.3 The meaning of Japans high relative poverty rate
According to the OECD, as shown in Figure 5, Japans relative poverty rate based
on disposable income after tax and social security payments was the second highest
after the US among 14 advanced countries in 2000, and in the mid-1990s (for the same
income) was the third highest after the US and Italy. The relative poverty rate is the
ratio of people with less than median income to total people in a country. This means
that while the number of the extremely rich may be small, the number of poor is large
in Japan.
If we look at relative poverty rate in terms of market income (income before
tax and social security payments), Japans relative poverty rate was the sixth lowest
246 yutaka harada
after Scandinavian countries, the Netherlands, and Canada in 2000 and in the
mid-1990s was the lowest among 14 advanced countries. Japans relative poverty
rate is high in terms of disposable income after tax and social security payments,
but low in terms of market income. The reason is that in Japan social security
payments such as child allowances, unemployment benets, and public assistance are
low.
For example, Japans level of public assistance payments on document is as high as
those of European welfare states, but Japan does not actually give assistance to the poor.
Tachibanaki
74
estimated that the proportion of those who subsist on lower amounts
to the total population is 13%, while only 0.7% of the population actually receive
public assistance. Additionally, regular workers, who are seldom red, are heavily
protected by the unemployment insurance system, but non-regular workers, who are
oftenred, are not. Giventhis strange system, it is natural that the relative poverty rate is
high.
Until now, Japans social stability has been achieved through organizations. An
increase in public investment meant giving money to construction companies to hire
the unemployed. This was a good idea in that it killed two birds with one stone if the
construction companies built the necessary infrastructure, but, in the 1980s, ten years
after the end of the high economic growth period, the Japanese government found
it difcult to pinpoint suitable infrastructure projects. This became a costly way of
maintaining social stability. Japan should have perhaps copied the European way of
giving assistance directly to people.
Conclusions of Section 2
I have discussed several points regarding inequality, that among younger
generations being particularly important since it increases inequality in the future.
Japans economy will stagnate for a long time if the young do not acquire
skills.
Another important point is that Japans system is extremely inefcient in
maintaining social stability. To construct useless dams, roads, ports, and airports is
extremely costly just to provide jobs for the unemployed. It would be much better to
give direct assistance to the poor.
3. Budget decit and increasing burden of an aging population
Japan has a huge budget decit. Some economists take it seriously others not.
Government bonds equal debt for the government, but assets for the people. Lets
consider the problemindifferent way. Japanese populationdeclines because of lowbirth
rate. The last Japanese will be born after around 1000 years later if Japans population
decreases at its present rate andhe/she will be heir toall the assets anddebts of Japan. The
government and citizens will be the same if there is only one citizen. The last Japanese,
74
Tachibanaki, Unequal Society, p. 18
policy issues regarding the japanese economy 247
as the government, would have huge debts in the shape of Japanese government
bonds, but, as the only citizen, huge JGB assets. The value of JGBs as debts would
be exactly the same as that of JGBs as assets. Then, JGBs would be neither debts, nor
assets.
75
JGBs are nothing, but social infrastructure constructed by issuing JGBs is an asset
if useful. The last Japanese could not derive any benet from idle infrastructure such
as rarely used roads and bridges, ports where ships seldom dock, airports where planes
hardly ever y, and dams whose stored water is scarcely ever used. Nothing remains
if the government used the money obtained from JGBs for current expenses. Useless
infrastructure is exactly the same as nothing.
Then, what would happen, if, by raising taxes, and not issuing JGBs, but there is
no change in the structure of government expenditures, that is constructing useless
infrastructure? The point is to reduce wasteful government expenditures, but not to
reduce the budget decit by raising taxes. Therefore, we can conclude that we do not
have to worry about budget decits, but rather whether the government wisely uses tax
money or not.
I do not completely believe in the above argument, and, additionally, the last
Japanese would have debts if JGBs were held by foreigners. Then, it would be correct
for the Japanese government to decrease the debt step by step.
3.1 Current budget decit situation
What government gures should be used? Government is divided into central
government, local government, and social security funds in the System of National
Accounts (SNA). Government debts are dened according to the common denition
used worldwide. Japans social security fund has huge assets, but which it is a saving
for future repayment in the form of pensions, and thus cannot really be considered
assets. Then, I lookat the combineddecit of central government andlocal governments
because the central government budget systeminvolves making huge transfer payments
to local governments, controlling them, and, as a result, cannot but help bail them out
if they face a budget decit crisis.
Figure 6 shows the ratio of Japans central and local government expenditure,
revenue, decit (budget balance and primary budget balance), and debt outstanding to
nominal GDP since 1970. Budget decit was not so serious before 2008. During FY876
92 and FY0608, budget decit was shrinking, and debt outstanding to nominal GDP
was declining or stable. The reason is simple. Expenditure was controlled, tax revenue
rapidly increased during FY8792, and gradually increased during FY0608. Before the
global nancial crisis, Japan had almost succeeded in budget reconstruction. Indeed, it
could have signicantly reduced the ratio of government debt outstanding to nominal
75
This problem should be formally discussed as the Barro-Ricardo Equivalence Theorem. Regarding
empirical studies on the subject, refer to Hatano, Toshiya, Zaisei Akaji to Zaisei Unei no Keizai Bunseki
(Economic Analysis of Budget Decit and Fiscal Policy), Yuuhikaku, 2009, Chapters 3 and 4.
248 yutaka harada
Figure 6 Budget Decit Trends
Source: Cabinet Occice, SNA
Notes: Special effects in 1990, 98, 05, 06, 08, 09 are excluded.
GDP if the government had increased tax by 1% or 2% of GDP, which is equivalent
to a 2 or 4 percentage point hike in the consumption tax. Thus, Japans budget decit
was not a serious problem before the global nancial crisis. This view is supported by
several works such as Broda and Weinstein,
76
and Doi.
77
Broda and Weinstein think of Japanese government debt as net debt, which means
that the government can sell assets to repay it. To the contrary, Doi reject the idea
because a major portion of assets comprises pension funds to pay pensions in the
future (neither are against some of the assets being used for repayment), but both
conclude that Japan could stabilize the ratio of debt to GDP through a reasonable tax
hike without resorting to using government assets.
The budget decit, however, worsened because of the global nancial crisis. What
happened? As shown in Figure 6, the ratio of government debt (net) to GDP jumped
from 123.4% in 2007 to 148.5% in 2010. Government revenue fell by 20.2 trillion yen
from 2007 to 2009, and government spending increased by 11.3 trillion yen in the same
period. The increase in government spending was caused by scal stimulus measures
76
Broda, C. and D.E. Weinstein, Happy News from the Dismal Science: Reassessing Japanese Fiscal
Policy and Sustainability, in Takatoshi Ito, Hugh Patrick, and David E. Weinstein (eds.), Reviving
Japans Economy, The MIT Press, 2005, pp. 3978.
77
Doi, Takeo, Seifu Saimu no Jizoku Knosei wo Tanpo suru Kongo no Zaisei Unei no Arikata ni Kansuru
Shimyureshon Bunseki (Simulation Analysis on Fiscal Policy Assuring Sustainability of Government
Liability), RIETI Discussion Paper Series, 06-J-032.
policy issues regarding the japanese economy 249
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1
9
8
0
1
9
9
0
2
0
0
0
2
0
1
0
2
0
2
0
2
0
3
0
2
0
4
0
2
0
5
0
2
0
6
0
2
0
7
0
2
0
8
0
2
0
9
0
2
1
0
0
Social security expenditure Medical care Pension Other welfare Over 65 Over 75
Ratio to Nominal GDP or Total Population
Figure 7 Aging and Social security expenditure
Sources: National Institute of Population and Social Security Research, Yearbook on Social
Security,
Population Projection for Japan: 20062050 December 2006, Department of Statistics,
Estimated Population in Japan (19202000).
in response to the global nancial crisis, but there is no plan to return to the normal
spending level of 2007.
Concerning tax revenue, the recovery is weak, and will become weaker. BOJs
passive monetary policy has led to yen appreciation and deation, the latter
resulting in low interest rates, but interest rates cannot be negative, and the
difference between interest rates and nominal GDP growth has been substantial.
This has made and will continue to make Japans budget decit a serious
problem.
Lastly and most importantly, Japans aging population has caused a serious budget
problem, which I will discuss in the next section.
3.2 How serious is Japans aging population for its budget decit?
Figure 7 shows the ratio of those over 65 to total population and the ratio
of social security expenditure to nominal GDP. Population is estimated until
2105, but social security expenditure until 2008 by the National Institute of
Population and Social Security Research. The ratio of social security expenditure
to nominal GDP moved in the same way to the ratio of those over 65 to total
population until 2002, but then attened somewhat from 2003 to 2007, but jumped
in 2008.
250 yutaka harada
The increased trend in social security expenditure halted under the Koizumi
administration that advocated structural reform, but this policy was abandoned and
social security expenditure will increase in the same way as the ratio of those over 65 to
total population. If so, the ratio of social security expenditure to nominal GDP, which
is probably 23.1% in 2010, will increase to 31.8% in 2030, by which time it will be the
same as the ratio of those over 65 to total population (which will have risen to 39.6%
by 2050). In this case, the government has to increase the ratio by 8.7%( =31.823.1) in
2030, and by 16.5%(39.623.1) in 2050. On the other hand, a 1%consumption tax could
obtain revenue amounting to 0.5%of GDP, meaning that a 2%consumption tax would
be needed to obtain revenue of 1% of GDP. In short, the Japanese government has to
raise the consumption tax by 17.4% (2[31.823.1]) by 2030, and 33% (2[39.623.1])
by 2050.
This is not the end of the story. In the past, when the consumption tax was
introduced in 1987, and the rate raised from 3% to 5%, pension payments were also
raised so as to be in line with the rise in ination. Actually, the aged did not bear
consumption tax, because they were compensated for the consumption tax hike by an
increase in pension payments. In this case, the necessary consumption tax hike will be
33% (2 [39.623.1]) in 2030, and 54.6% (33 [10.39.6]) in 2050, which, I think, are
unacceptable tax rates.
Under Prime Minister Koizumis reformist administration, the ratio of social
security expenditure to nominal GDP was stable and controlled, increasing by only
0.7 percentage points from 2002 to 2007, while the proportion of those over 65 to
total population increased 3 percentage points in the same period. To the contrary,
the ratio of social security expenditure to nominal GDP increased 6.5 percentage
points in response to the proportion of those over 65 to total population increasing by
6 percentage points from 1991 to 2002.
The ratio of social security expenditure to nominal GDP will increase by only
2.6 percentage points (0.3[31.823.1]) from2010 to 2030, while the ratio of those over
65 to total population will increase by 8.7% (31.823.1), if the increase trend in social
security expenditure is halted as it was under the Koizumi administration. And, the
ratio of social security expenditure to nominal GDP would increase only 5.0 percentage
points (0.3 [39.623.1]) from 2010 to 2050, while the proportion of those over 65 to
total population increases by 16.5% (39.623.1). Of course, in this case the aged bear
the consumption tax. This means that the needed hike in consumption tax rate is only
10%. The increase in the aged will be slow from 2050, and the proportion of those over
65 to total population will peak at 42.2% in 2070, after which the gure will gradually
decline enabling Japan to bear the burden.
It may be difcult to adopt this scenario considering that people want to see
the expansion of social security expenditure. The government has to nd a way
to compromise the needs of social security expenditure and the need for a tax
increase considering that a 59.6% (current 5% + 54.6%) consumption tax rate is not
possible.
policy issues regarding the japanese economy 251
Suzuki and Harada
78
calculate the necessary consumption tax rates by using more
complicated assumptions, but the conclusionis basically the same. Japanhas to increase
the consumption tax rate to an unacceptable level, or cut social security expenditure
per aged person.
Conclusions of Section 3
Japans budget situation is extraordinary. Some economists argue that the budget
decit is not a serious problem the important thing is to cut wasteful government
expenditure andnot raise government revenue. I admit this argument has some validity,
but it is still necessary to reduce the budget decit.
Before the global nancial crisis, Japans budget decit was controlled, and
declining, but since the crisis it has become uncontrollable. Additionally, and more
importantly, an aging population requires more social security expenditure, which
causes a serious budget problem, which Japan apparently is not ready to tackle.
Conclusions
This paper covers three policy issues, that is the Great Recession, inequality, and
budget decit. The budget decit is an aging population problem.
Concerning the Great Recession (Japans prolonged economic stagnation since
1990), many Japanese economists tend to think that it was caused by an efciency
shock, but no economist can prove this, especially since TFP (total factor productivity)
in the 1990s did not decline compared to the rst half of the 1980s. Instead, I showed
that a monetary shock caused the Great Recession by referring to several empirical
studies.
The Japanese were not concerned with income distribution when the economy was
growing but came toworry about inequality as the economic slumpcontinued. Japanese
previously thought that the country was an equal society, but that it is now becoming
unequal. Actually, according to the OECD, Japan historically might not have been
an equal society among advanced countries. One reason is that Japans redistribution
policy is not effective. Among recent developments, the greater inequality among the
young should be noted, because such inequality will increase in the future.
Japans budget decit was controlled before the global nancial crisis, but after
that became uncontrollable. Additionally, the aging population will cause a budget
problem. The aged need pensions, and medical treatment and care. Japan has to nd
both an acceptable tax hike and acceptable cut in social security expenditure.
Finally, I would like to point out that expansionary monetary policy is useful
to alleviate some of these problems. Monetary policy can stimulate an economy
without increasing the budget decit; a stimulated economy can absorb unemployed
78
Suzuki, Hitoshi and Yutaka Harada, Zaisei wo ijisuru niwa Shakai Hoshou no Yokusei ga Hitsuyo
(Restraint of social security expenditure is needed to maintain budget stability), Daiwa Institute of
Research, 29 December 2010.
252 yutaka harada
young people, and reduce inequality among the younger generations. Economic
recovery through expansionary monetary policy increases tax revenue, and provides
social security expenditure without raising the burden on young and middle-aged
generations, although such an increase in tax revenue is clearly not enough.
The selection of the topics depends on my observations of Japanese journalism,
and does not depend onanobjective approach. I, however, believe that the issues, which
I selected here, are reected in Japanese concerns now. Japanese academic circles do not
necessarily respond to the interests of society, however I selected academic papers on
the topics where possible, but I could not help selecting some from research institutes
of government ministries and Bank of Japan.
Appendix 1: Major journals (in English and in local languages)
Journal of the Japanese and International Economies
Japan and the World Economy
The Japanese Economic Review
The Japanese Economy
Japan Echo
Kinyuuu Keizai Kenkyuu (Review of Monetary and Financial Studies)
Nihon Keizai Kenkyuu (Studies in Japanese Economy)
Seisaku Bunseki (The Quarterly Journal of Policy Analysis)
Journal of Economic Policy Studies (Journal in Japanese)
Shakai Seisaku (Social Policy)
Chuou Kouron
Voice (Journal in Japanese)
The Keizai Seminar (Journal in Japanese)
Keizai Bnseki (The Economic Analysis), Economic and Social Research Institute, Cabinet
Ofce
Financial Review (Journal in Japanese), (English version, Public Policy Review), Policy
Research Institute, Ministry of Finance
Kinyuu Kenkyuu (Journal in Japanese), (English Version, Monetary and Economic
Studies), Institute of Monetary and Economic Studies, Bank of Japan
ESRI Discussion Paper Series, Economic and Social Research Institute, Cabinet Ofce
RIETI Discussion Paper Series, Research Institute of Economy, Trade and Industry,
Ministry of Economy, Trade and Industry,
IMES Discussion Paper Series, Institute of Monetary and Economic Studies, Bank of
Japan
Appendix 2: Academic associations in terms of size and sub-specialization
The Japanese Economic Association (Number of Members: 3296)
Japan Society of Monetary Economics (1275)
Japanese Economic Policy Association (1266)
policy issues regarding the japanese economy 253
Society for the Study of Social Policy (1126)
Network for Policy Analysis (450)
Appendix 3: International and transnational links
The Japanese Economic Association
Japan Society of Monetary Economics
Japanese Economic Policy Association
Society for the Study of Social Policy
Network for Policy Analysis
Japan Center for Economic Research
Economic and Social Research Institute, Cabinet Ofce
Policy Research Institute, Ministry of Finance
Research Institute of Economy, Trade and Industry, Ministry of Economy, Trade and
Industry,
Institute of Monetary and Economic Studies, Bank of Japan
About the author
After graduation from University of Tokyo in 1974, Yutaka Harada joined Economic
Planning Agency, the Government of Japan. He got M.A. in Economics fromUniversity
of Hawaii in 1979. He worked as Directors of Overseas Research Division and Social
Research Division, Economic Planning Agency, and Vice President, Policy Research
Institute, Ministry of Finance, and others.
His books are Studies on the Showa Depression (with Kikuo Iwata, and others)
awarded Nikkei Prize for Excellent Books in Economic Science, and Theory and
Empirical Studies on Prolonged Stagnation (with Koichi Hamada and others),Why are
There Many Poor People in Japan, Synchronous Crises in the World Economies (co-
authorship), Principles of Japan awarded Ishibashi Tanzan Prize, Dont Be Afraid of
Population Declining Society (co-authorship), Why Is Deation Scary?, Japans Lost
Decade, A Search for Charm of Cities, Economic History of JapanUS Economic Relations
and others.