At the beginning of the 1990s, a massive speculative asset bubble burst in Japan, leaving the nation's banks with an enormous burden of nonperforming loans. Banking crises have become increasingly ...common across the globe, but what was distinctive about the Japanese case was the unusually long delay before the government intervened to aggressively address the bad debt problem. The postponed response by Japanese authorities to the nation's banking crisis has had enormous political and economic consequences for Japan as well as for the rest of the world. This book helps us understand the nature of the Japanese government's response while also providing important insights into why Japan seems unable to get its financial system back on track 13 years later.
The book focuses on the role of policy networks in Japanese finance, showing with nuance and detail how Japan's Finance Ministry was embedded within the political and financial worlds, how that structure was similar to and different from that of its counterparts in other countries, and how the distinctive nature of Japan's institutional arrangements affected the capacity of the government to manage change.
The book focuses in particular on two intervening variables that bring about a functional shift in the Finance Ministry's policy networks: domestic political change under coalition government and a dramatic rise in information requirements for effective regulation. As a result of change in these variables, networks that once enhanced policymaking capacity in Japanese finance became "paralyzing networks"--with disastrous results.
In 1996, the Japanese government introduced a policy package initiating massive deregulation and liberalization in the nation's financial sector, referred to as Japan's financial 'Big Bang.' This ...book argues that the emergence of the Big Bang Initiative poses numerous challenges to conventional interpretations of Japanese politics and represents a clear case of institutional change in Japanese finance. Whereas many observers stress continuity in Japanese politics, this book argues that the emergence in the 1990s of performance failures and scandals attributed to the bureaucracy, as well as the increase in the likelihood of a change in government in this period, led policymaking patterns surrounding the Big Bang to differ radically from those dominating public policymaking in the past. These developments led to change in the nature of the alliance between the ruling Liberal Democratic Party (LDP) and the Ministry of Finance (MOF), to a shift in priorities within the MOF, and to a heightened role for the public in policymaking. The result was that the MOF, long perceived as 'entrenched' and seeking to maximize tangible tokens of organizational power, became more than willing to launch the Big Bang, despite the fact that these reforms would strip the ministry of many of its regulatory tools and sever the ministry's close ties with the financial sector. The book also argues that these new developments prevented financial industry actors from forestalling these reforms, as they had done in the past with other reforms similarly threatening the viability of weaker firms. The findings reveal that not only politicians, but also bureaucrats and interest groups, have reasons to pursue public support to enhance their respective political influence. Consequently, well-organized groups do not always prevail over the unorganized public. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/0199292396/toc.html
Japanese Governance Amyx, Jennifer; Drysdale, Peter
2003, 20030829, 2002-11-28, 2003-08-29, 20020101
eBook
Japan Inc was once used to describe the powerful political and economic system that delivers Japan's transformation to an industrial power. This book is about the breakdown and failure of policy ...coherence in Japan in the 1990s and how the political economy of Japan has changed in response. The essays in the volume seek to identify where change has occurred, as well as where things have not changed and why. The issue of policymaking transparency is accorded particular attention.The book covers a wide range of Japanese institutions and policy areas, including the political party system, electoral and legal reforms, deliberation councils and the financial and agricultural sectors. The findings suggest that resistance to change through the political system is at the root of Japan's inability to deal with its national policy problems. Nonetheless, there has been considerable reform and change towards more open economic and political competition. And, these changes profoundly affect the way in which foreign governments must now relate to domestic political processes in their dealings with Japan.This interdisciplinary book draws together contributions from experts in political science, economics, law and Japanese studies to give a deeper understanding of how Japan's political economy and policymaking processes are working today.
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At the beginning of the 1990s, a massive speculative asset bubble burst in Japan, leaving the nation's banks with an enormous burden of nonperforming loans. Banking crises have become ...increasingly common across the globe, but what was distinctive about the Japanese case was the unusually long delay before the government intervened to aggressively address the bad debt problem. The postponed response by Japanese authorities to the nation's banking crisis has had enormous political and economic consequences for Japan as well as for the rest of the world. This book helps us understand the nature of the Japanese government's response while also providing important insights into why Japan seems unable to get its financial system back on track 13 years later.
The book focuses on the role of policy networks in Japanese finance, showing with nuance and detail how Japan's Finance Ministry was embedded within the political and financial worlds, how that structure was similar to and different from that of its counterparts in other countries, and how the distinctive nature of Japan's institutional arrangements affected the capacity of the government to manage change.
The book focuses in particular on two intervening variables that bring about a functional shift in the Finance Ministry's policy networks: domestic political change under coalition government and a dramatic rise in information requirements for effective regulation. As a result of change in these variables, networks that once enhanced policymaking capacity in Japanese finance became paralyzing networks--with disastrous results.
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Many factors have served as impetus for greater regional cooperation and integration in East Asia in recent years but the regional crisis that erupted in East Asia in 1997-1998 clearly served as a ...catalyst for regional financial cooperation. When funds from the International Monetary Fund (IMF) proved inadaquate for quelling the crisis in Thailand in July 1997, countries in the region cooperated in a Japan-led effort to assemble bilateral aid packages for Thailand while the United States sat on the sidelines. Soon thereafter, Japanese officials put forward an informal but highly publicized proposal to establish a new regional monetary fund - dubbed an "Asian Monetary Fund" (AMF) to aid countries stricken by crisis. The AMF proposal encountered a number of obstacles - the most formidable of which was opposition by the United States and IMF - and in 1997, Japanese officials aborted the initiative for a new-region based multilateral monetary institution, ASEAN+3.
This article examines the case of institutional inertia in Japanese financial regulation, focusing on the reasons why institutions centered on informal modes of organization and interaction proved ...particularly ‘sticky.’ The Japanese case serves as a particularly tough test for theories of institutional adaptation and change because even crisis – a time when the costs of inaction tend to far exceed the benefits – failed to produce timely institutional change. The paper argues that informal, exclusionary and opaque relational ties served as a functional substitute for formal regulation and promoted cooperative government-bank relationships in an earlier period. Yet, when the informal attributes of the system began to impede the sound functioning of the financial system, the very opacity of these ties and the informational dynamics underlying them meant that the Diet and the general public were less than fully aware of the extent of dysfunction present as time went on.
Regional financial cooperation in East Asia is proceeding with unprecedented intensity. Latest developments include two Asian Bond Funds, created by the regional central bankers group, and an Asian ...Bond Markets Initiative launched by the finance ministers of the Association of South East Asian Nations member states plus China, Japan, and South Korea (or ASEAN+3). Some observers continue to attribute such cooperation to sharpened antagonism between East Asia and the West since the Asian financial crisis of 1997-98. But this view overlooks a key internal driver: China's shift to a more proactive stance toward regional cooperation. Far from demonstrating an antagonism toward market-based financial systems, ASEAN+3 members are embracing more liberal rules for economic interaction in their creation of regional bond funds and markets. Financial cooperation in East Asia is today motivated by factors that differ considerably from those observed in the immediate aftermath of the Asian financial crisis-and the implications extend beyond East Asia.
From a comparative perspective, the Japanese government’s initial regulatory forbearance toward banks following the bursting of the nation’s asset bubble fell into the realm of normalcy. Governments ...often delay as long as two to three years before mustering the political will to allocate public funds to strengthen their banking sectors. And, examples of more protracted delay—such as the five years taken by U.S. authorities before addressing that nation’s Savings and Loan crisis—also exist. As Japan’s nonperforming loan problem dragged on into the latter half of the 1990s, however, the distinctiveness of the Japanese case became increasingly evident. Only
The inflation of the speculative asset bubble came to a screeching halt in 1990–91 when tightened monetary policy and lending restrictions induced a plunge of unanticipated magnitude in asset values. ...The repercussions for the banking sector were huge. The balance sheets of all Japanese banks—from the smallest cooperative-type deposit-taking institutions to the largest commercial banks—were crippled with massive amounts of nonperforming loans.²
Typically, a capital injection into banks crippled by bad loans restores capital ratios and thereby substantially reduces the degree of systemic risk triggered by bank collapse. A capital injection also tends to improve market confidence
