Crisis in Japan and the Way Out: A Counterargument to Pessimistic Views

Kunimune Kozo

The Developing Economies, 1999, vol. 37, issue 4, 514-539

Abstract: This paper focuses on a review of the present state of, and outlook for the Japanese economy. The paper is composed of three parts. The first describes the interrelation between the crisis-ridden East Asian economies and Japan. I argue that Japan did not cause the Asian currency crisis. The second part describes the current state of the Japanese economy after the bubble burst. I also discuss the medium- and long-term challenges that face the Japanese economy. The third part concentrates on the issue of the "liquidity trap" Japan is experiencing. I argue that the yen's exchange rate is more likely to appreciate than depreciate by pumping liquidity into the economy while interest rates cannot be lowered any further, and therefore a "helicopter money" policy is the only way to induce a positive inflation rate and escape from the liquidity trap.

Keywords: Economic Crisis; Japan; East Asia; 経済危機; 日本; 東アジア (search for similar items in EconPapers)
Date: 1999
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