From Fast to Last: The Japanese Economy in the 1990s

Japan is the first country that achieved the economic miracle of rapid growth. From stellar performance in the 1960s, it shifted to slow-growth (1975-90) but it still maintained the highest growth, and lowest inflation, among G7 economies. However, in the 1990s it had the lowest growth rate among the G7. This stagnation is due to three major factors. The first factor is the short-term reaction to the over-expansion of the economy in the late 1980s. The financial sector still is struggling with the aftermath of the bubble. The second factor is the on-going contraction of manufacturing. Manufacturing drove Japan's growth, especially productivity growth, but now employment is falling in that sector. The third factor is long-term changes in the population structure, specifically, the rapid aging of the population and the low level of the birth rate. All these changes have serious macroeconomic effects on the economy. If the Japanese economy is to be revitalized, an intensive and extensive overhaul is required, urgently. If Japan does not succeed at this task, its future will be dismal