Japan's Financial Crisis: Institutional Rigidity And Reluctant Change (Princeton Paperbacks)

At the beginning of the 1990s, a massive speculative asset bubble burst in Japan, leaving the nation's banks with an enormous burden of nonperforming loans. Banking crises have become increasingly common across the globe, but what was distinctive about the Japanese case was the unusually long delay before the government intervened to aggressively address the bad debt problem. The postponed response by Japanese authorities to the nation's banking crisis has had enormous political and economic consequences for Japan as well as for the rest of the world. This book helps us understand the nature of the Japanese government's response while also providing important insights into why Japan seems unable to get its financial system back on track 13 years later.

The book focuses on the role of policy networks in Japanese finance, showing with nuance and detail how Japan's Finance Ministry was embedded within the political and financial worlds, how that structure was similar to and different from that of its counterparts in other countries, and how the distinctive nature of Japan's institutional arrangements affected the capacity of the government to manage change.

The book focuses in particular on two intervening variables that bring about a functional shift in the Finance Ministry's policy networks: domestic political change under coalition government and a dramatic rise in information requirements for effective regulation. As a result of change in these variables, networks that once enhanced policymaking capacity in Japanese finance became "paralyzing networks"--with disastrous results.

Reviews:

Amyx is one of very few scholars doing the kind of yeoman's work in political science today that is necessary for successfully integrating original source field research with rigorous theoretical analysis. The payoff is the kind of detailed and informed study that made Johnson's MITI and the Japanese Miracle a classic. Amyx's analysis of networks inclusive of the Ministry of Finance provides a rich explanatory framework for policy paralysis over the course of a dozen + years. A particularly interesting insight is that networks (i.e., people) make institutions durable even as institutions structure incentives for individuals. This reinforcing relationship, in Japan's case, led to intransigence and suboptimal outcomes for nearly all parties. I highly recommend this to readers interested in an update on bureaucratic politics in Japan, and those interested in the backstory to the grim headlines on Japan in the financial papers over the last decade. Even as Japan starts its long-delayed turnaround, this book will help readers understand where change is most likely to occur, and where the bottlenecks still exist.