ABSTRACT
The surplus of capital, which increased from 3 per cent of gross national product in the late 1970s to about 5 per cent in recent years, mainly flowed to the United States, attracted by a shortage of investment capital resulting from the fiscal expansion and ‘crowding out’ of capital from the private sector. The fact that the population was ageing and that industrial restructuring was likely to result in structural unemployment meant that there would be additional demands on the government to provide better social services in the future. The social welfare system in Japan was still rather rudimentary by Western standards and the government anticipated having to make considerable financial outlays in the future which would necessitate strict austerity to bring the present fiscal crisis under control. Despite the fact that fiscal measures are generally considered more effective in demand expansion, the government, unable to overcome opposition from the conservative Ministry of Finance, concentrated initially on non-spending programmes.
