ABSTRACT
The Heisei Era ended Japan's status as an economic superstar. In what is now called the three ‘lost decades’, growth tumbled to just 0.9 per cent per year, compared to 4 per cent during 1975−91. At first, policymakers took minimal steps, having dismissed the low growth as just a rough patch following the popping of a stock market and real estate bubble. A financial and bank crisis in 1997−8 stemming from a mountain of unpayable corporate debts, combined with intractable deflation, compelled more action. Various remedies were tried, ranging from stop-go fiscal stimulus to monetary stimulus and inflation targeting. These were necessary but insufficient. Finally, policymakers talked of structural reform, from Prime Minister Junichiro Koizumi to Shinzo Abe's ‘Abenomics’ and his famous ‘three arrows,’ but it remained mostly just talk. What Japan needs is a combination of fiscal and monetary stimulus combined with structural reform focused on enhancing more competition in the business sector, reviving entrepreneurship, and more globalization, including inward Foreign Direct Investment.
