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Economics / Business

Japan’s Financial Crisis: Institutional Rigidity and Reluctant Change

(Princeton University Press 2004)

Jennifer A. Amyx

Financial supervision in Japan, so successful in the 1970s, became dysfunctional from the 1990s.
What had occurred and how it happened is detailed by the author.
The speculative asset bubble which had supported economic Japan burst, leaving the banks with the burden of non-performing loans.
Such burdens are not rare in the world’s banking centers, but what was unusual was the delay the Japanese government allowed itself before intervening to address the bad-debt problem.
What is here fully displayed is just how deeply Japan’s Finance Ministry had penetrated political and financial circles, how the structure of Japan’s ministries made this possible, and how the nature of Japan’s institutional arrangements affected the government’s capacity to manage change at all.
The author calls attention to two variables that brought about a shift in the Finance Ministry’s policy networks: domestic political change under a coalition government, and a rise in information requirements for effective results.
One outcome was a move by the national legislature to dismantle the ministry, something unimaginable a decade earlier.
The question that appeared was “how could institutional arrangements for financial policy making and regulation work so well for so long and yet also be guilty of leading Japan into such an economic abyss?”

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