Japan's Financial Crisis and Economic Stagnation

We survey the macroeconomic stagnation and financial problems in Japan. The financial sector assessment includes separate analyses of the commercial banks, the life insurance companies and the government's fiscal investment and loan program (FILP). We estimate that the Japanese taxpayer will ha...

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Bibliographic Details
Published in:The Journal of economic perspectives 2004-01, Vol.18 (1), p.3-26
Main Authors: Hoshi, Takeo, Kashyap, Anil K.
Format: Article
Language:English
Subjects:
Bank assets
Bank capital
Bank loans
Bank markets
Banking industry
Banking regulation
Banks
Consumer Price Index
Deflation
Economic conditions
Economic crisis
Economic recovery
Economic stagnation
Economic theory
Economics
Financial economics
Financial institutions
Financial services
GDP
Great Recession
Gross Domestic Product
Growth models
Inflation rates
Institutions
Japan
Life insurance
Loans
Loss
Macroeconomics
Stagnation
Studies
Subsidies
Symposium: Japan's Economy
Taxpaying
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Summary:We survey the macroeconomic stagnation and financial problems in Japan. The financial sector assessment includes separate analyses of the commercial banks, the life insurance companies and the government's fiscal investment and loan program (FILP). We estimate that the Japanese taxpayer will have to pay at least another ¥100 trillion (20% of GDP) to cover financial system losses. We explain how the current dysfunctional Japanese banking system misallocates funds by keeping many insolvent firms in business. These inefficient firms crowd out potentially profitable ones and worsen macroeconomic stagnation. A sustained macroeconomic recovery requires serious restructuring aimed at stopping this cycle.
ISSN:0895-3309
1944-7965
DOI:10.1257/089533004773563412