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No. 31 — August 14, 1998

 

Feature Article

FRUGALITY IN THE MIDST OF RECESSION: JAPANESE PERSONAL SAVINGS IN THE 1990S by Douglas Ostrom

Summary

Many experts consider Japanese savers the unsung heroes of the nation's postwar economic miracle. They regularly socked away large amounts of money despite low rates of return. Their savings, in turn, played a major role in mobilizing the investment that was an important factor in Japan's rapid economic expansion.

Analysts expected Japan's economic maturity to lead to lower rates of personal savings, but the evidence on that score is not conclusive. Still high savings rates raise questions about what economic policy is appropriate during periods of slow growth — not least because large savings affect the size of Japan's external imbalance but also because high savings rates can complicate economic recovery.

The failure of Japan's savings levels to grow as rapidly as those in the United States despite higher rates of savings points to the need for significant reform of the nation's financial structure, including deregulation to be implemented under the Big Bang timetable. However, such changes, whose extent remains somewhat unclear, would not inevitably lead to a convergence of Japan's personal savings pattern with that of the United States.

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Weekly Review

OBUCHI OUTLINES DOMESTIC, FOREIGN POLICY GOALS by Barbara Wanner

Anxious to earn public confidence in his fledgling government, Prime Minister Keizo Obuchi pledged August 7 to take "decisive, swift" steps to restore Japan's ailing economy and to clean up the banking industry's bad-loan mess. "The greatest way in which Japan can contribute to Asia and the world," Mr. Obuchi said in his inaugural policy speech before the Diet's lower house, "is through the sound functioning of the Japanese financial system and the revitalization of the Japanese economy." Toward this end, the prime minister said, he would seek out the "wisdom of the people" by establishing a Strategic Economic Council composed of private-sector experts to draft proposals for cabinet consideration.

 

OBUCHI PROMISES ATTACK ON ECONOMY'S PROBLEMS by Jon Choy

In his first speech to the Diet as head of government, Prime Minister Keizo Obuchi outlined his party's plans to "achieve first and foremost a drastic disposal of bad loans held by private financial institutions" as well as to "strengthen the economy from the supply side." Mr. Obuchi underscored his determination to win Diet approval of six recently introduced bills that would create a legal framework for dealing with banks overburdened with bad loans. In a pointed reference to the Liberal Democratic Party's poor showing in the mid-July upper house elections, however, the prime minister also said that he would be flexible on the banking-industry rescue legislation in order to win the votes of the opposition parties, which have a majority in the House of Councillors. Since taking control, Mr. Obuchi and his cabinet have floated numerous policy balloons, all aimed at convincing voters, domestic business leaders and foreign financial markets that the new "economic reconstruction cabinet" intends to live up to its name.

 

RISING JOBLESSNESS POINTS TO CONTINUED ECONOMIC WEAKNESS by Douglas Ostrom

In his efforts to revive the economy, Prime Minister Keizo Obuchi will have to contend with a relatively new factor: growing public awareness of the country's economic difficulties. Few economic problems bring reality home as clearly as unemployment, which in June reached another record high: 4.3 percent. Moreover, virtually every indicator as well as the government itself hint that the situation will get worse before it gets better.

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