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Political Economy in Japan Essay

Japan’s political economy has long been admired all over the world for being able to sustain huge economic growth, following its major economic stagnation in the nineties.

The tremendous economic growth has been largely due to political and economic conditions that have facilitated its industrialization. Japan is the first non-western country to emerge with a major world economic power despite constraints in the world economy. Its success in industrialization can be attributed to its institutional ability to regulate government-society relations.

The government imposed measures to regulate and restrict financial institutions in their economic operations to promote its national economic growth.

These measures are put in place in cases where the economy is characterized by many small banks that perform poorly compared to the larger banks. In addition, the insurance sector performs poorly and has smaller impact to the economy compared to the banking industry. Moreover, there are more small firms than the large financial institutions that operate in the economy with high inefficiencies.

Deregulation of the economy focuses on the elimination of barriers to development of small and large-scale financial institutions and enterprises.

On the other hand, liberalization of the market consists of fewer and simpler regulations in combination with those that increase efficiency and protect consumer’s rights. These include intra- and inter institutional restrictions. These restrictions have the benefit of protecting small and inefficient institutions from unfair competition with respect to huge performance of large and more efficient banks.

Moreover, these restrictions do not only benefit small and inefficient institutions, but also large financial institutions that are protected from rivalry with other large and efficient financial institutions that might cause them to underperform. In as much as the large financial institutions benefit, the small-scale businesses together with consumers may be harmed due to low and poor productivity.

Current dynamics in technological and financial innovations have resulted to changes in economic situations that existed since the nineties. The innovations have eroded the benefits of restrictions in the economy. An example of innovation is the Automated Teller Machine that was proliferated into the banking sector from the 1970s onwards. This innovation has reduced protection of small-scale banks that compete with the large financial institutions.

The president of LDP party, Mr Koizumi, has been pushing for privatization of trade and industrialization that has exerted pressure on other politicians who view this move of privatization as a threat to pensions and health-care finances in the economy. Taxes and local-government finances have become a major issue among politicians and citizens who are against reforms.

Japans’ finance ministry claimed a major economic breakthrough in achieving an end to stagnation in progress and growth of its economy. However, Japan’s economy can grow more if its competitiveness in the global economy is enhanced by more liberalized and innovative ideas (Anon Para 6).

Mr Koizumi also emphasized on reforms that focused on deregulation and privatization of parastatals that were becoming unproductive. The privatization move on the public corporations was mainly to expose them to market forces, which will automatically push them to be more innovative and efficient in order to be able to fit into the competitive market.

These reforms are primarily focused on market driven ideologies to bring an end to wasteful and fraudulent public spending and conservative ideology that contributed to stagnation of the economy.

Although Japan has admirable economic growth rate, its workforce is tied to issues such unequal reward, while payments are still largely focused on level of seniority; for instance, the more senior a person is, the more pay he gets regardless of level of skill or hard work. Multinationals have always been secluded from the Japanese economy although as growth continues, flexibility and competitiveness of the multinationals is exactly what the Japanese economy needs for a takeoff in the context of liberalization and deregulation.

The Japanese leader, Hashimoto, realized this need of competition and liberalization if only it was not for its mess of bad loans that has reduced capacity of banks in the economy. Nevertheless, due to the thin capital structure of financial institutions in the Japanese economy, deregulating of the banking sector could result in a vicious circle of selling (Bremner, et al Para. 24).

Japanese economy, which was characterized by stagnation in its economic growth and development, may face pressures to loosen its fiscal reforms and deregulation strategies if it goes into recession.

The forces may also act as a big contribution to push down the Yen and facilitate enactment of sanctions for price control to enable maintenance of economic stability (Peng-Er, Para.10). Stagnation of the economy can be broadly attributed to wastage of public funds through public works and huge widespread unpaid loans in its financial institutions.

Japan’s political and economic governance is characterized by Keynesian centralization that has flexible policies that accommodate anti-inflationary measures and macro-economic policies. In addition, Japan implemented restrictive measures that were in line with monetarist centralization that could be falsely claimed to bring distributive conflicts within the economy.

The monetarist centralization was also falsely claimed to contribute to high rates of unemployment. This false attribution did not consider its importance on employers who were able to bargain on wages through their unions. These facilitated economic growth; in that, unproductive labor was rewarded according to its contribution.

Complexity of Japans economic conditions in the 1950s is blamed on the country’s possession of a complicated and ancient cultural tradition. Japanese population is made of communities that are closely set up.

This closeness has led to the adoption relativism and pragmatism among the citizens, thus confirming the theory that claimed the aspect of collective memory as a localized phenomenon that was socially constructed among the people who lived in close proximity influencing each other in the context of political and economic factors within a particular political-economic context.

Japanese government implementation of deregulation has enabled it to tremendously lift its economy, given the implication of biggest challenge of huge budget deficit. The solution to these deficits continued to be a problem in implementation of its reform strategies, as the government could not afford to make a large tax cut.

Moreover, the government has been on the forefront opposing trade liberalization in the world economy. It had resulted in the failure to liberalize trade by refusing to sign in to a free trade agreement with Australia and despite that, it refused to join a free trade zone in the Asia-Pacific.

Japanese economic market condition has been a source of an indication to the global economy’s negative effect and impact on Japan’s restricted and overregulated domestic economy. This has acted as evidence and proof of Japan’s need to experiment with liberalization and put in place transformation measures that would build and stabilize its economy in preparation of industrialization and huge economic growth. This is an indication of the need for economic reforms.

Lenders in Japans economy could lend no more despite the fact that it was an essential tool for economic development. This decision is made because of the huge loan repayment that has been defaulted leading to low and insufficient capital base.

This has caused classification of Japan’s financial institutions as those below international standards, thus resulting in erosion of equity portfolio values, which have a huge impact on both domestic and international investors. The investors loose faith in financial institutions potential to grow and develop with respect to share valuation.

Moreover, the financial institutions even become more reluctant to lend at all due to the threat posed by investors’ loss of faith, given the significant percentage of shares they hold in the institutions. Basically, financial institutions are dependent on investors and thus their refusal to lend at all may threaten to bring down the economy (Bremner, et al Para 25).

Japan is the only industrialized country that has maintained its stand on refusing to allow foreign investors to directly invest in its domestic markets. This has been the case for a long period until the time when domestic participants took the initiative of rallying against the stand; and with the support of foreign investors, the Japanese economy finally gave in.

The initiative came from American and other multinational corporations that have been pushing on for a long time to exploit the Japanese domestic economy whose markets comprise of assets and technology that they control.

Liberalizations in Japan that took place between late 1960s and early 1970s became applicable and impacted on the economy of Japan. However, Japanese oligopolies emerged as a significant economic power whose potential easily replaced politically initiated regulations with private restrictions in the economy.

De facto liberalization in Japan as a result continued while direct investment by foreigners weakened through the 1980s, leading to uneven influence and participation in the Japanese economy. However, Japanese success in capital liberalization occurred as a result of pressures of American diplomacy being backed up by multinational corporations and Japanese domestic participants that proved to have amassed great economic power.

In the midst of intense structural change and economic competition in the global economy, Japan economy had projected the impression that its economic performance had lagged behind compared to the world economies. This non-performance was identified to be both domestically and internationally aligned.

The global transformation necessitated that all nations should facilitate further efficiencies and reforms. Non-performance of Japanese economy is attributed to its grave weakening foundation that started after the war that affected its economy through loss of her colonies such as Korea and Formosa. With respect to these, Japans economy was grossly affected by the loss of assets and big economic opportunities.

Japanese economy has been able to Shift from closed economy to an open economy characterized by more free activities by participants and lose restriction on entry and exit of the market participants. These were the main indication that Japan’s economy achieved a certain level of liberalization in the sector of foreign trade and capital transactions such as the ability for investors to carry out direct investment in the Japanese economy.

Moreover, liberalization of foreign trade and capital transaction enabled the economy to achieve internationalism. In addition to huge benefits such as internationalism and economic transformations, Japan also achieved balance of payment and reduction of tariff to the international level (Taylor and Thrift pg 196).

Works Cited

Anon. “Metimorphosis: Issue Economic change and political reform have weakened a dominant ministry.” Economist, Vol. 374, Issue 8412. 2005. Web.

Bremner, Brian, et al. Two Japans: The gulf between corporate winners and lowers in growing. The McGraw-Hill Companies-Inc. 1997. Web.

Peng-Er, Lam. “Structural Reforms in Japan: Promises and Perils.” Asian Affairs: An American Review, Vol. 29, No. 2, pp 67. 2002. Web.

Taylor, Michael and Thrift, Nigel. Multinationals and the Restructuring of the World Economy: The geography of multinationals. NY: Taylor & Francis, 1986.

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IvyPanda. "Political Economy in Japan." August 29, 2019. https://ivypanda.com/essays/political-economy-in-japan/.


IvyPanda. 2019. "Political Economy in Japan." August 29, 2019. https://ivypanda.com/essays/political-economy-in-japan/.


IvyPanda. (2019) 'Political Economy in Japan'. 29 August.

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