ABSTRACT
Japan is currently wallowing in its worst recession ever. During the first six months of 1995 each day’s fall in land and share prices brought closer the possibility of a 1930s-type financial collapse, because, as was widely agreed, the banking system’s bad debts in relation to its shrinking asset base had long since reached enormous proportions. From a high of 38,916 at the end of 1990, the Nikkei stock average index plummeted to 14,390 in mid-1992, and although it subsequently clawed its way over the 20,000 level, the Kobe earthquake eroded the premature confidence and by July 1995 it was teetering on the brink of the 13,000 level. Even officialdom accepted that Japan’s so-called recovery had come to a “standstill.” A month later, in spite of a partial revival of share prices and a marginally cheaper yen, mining and manufacturing production continued its unabated fall, with few signs of any end to the slowdown. 1 The main reason why the country’s problems have been so intractable is that the solutions which have so far been applied have actually constituted their most fundamental cause and have therefore tended to fan the flames of recession rather than extinguish them. Japan has been suffering from a classic case of underconsumptionism and its associated chronic deflation.
