A Slow Train Coming? Understanding the Lessons from Japan’s ‘Lost Decade’

Abstract

The ten years following the bursting of Japan's hugely inflated 'economic bubble' in 1990 was widely known as Japan's 'lost decade', and it was largely reproduced in the first decade of the twenty-first century. During the 1990s, successive Japanese governments struggled to overcome the structural challenges created by the collapse of the bubble economy, even as the United States and the so-called Asian Tiger nations - which only a few years before had viewed Japan as the model for economic success - enjoyed sustained growth and prosperity. During the 2000s, Japan's economy remained hamstrung by deflation, low tax revenues and low consumer confidence. It could manage only a series of short-­lived bursts of largely export-led growth before again slowing in the wake of the 2008 Global Financial Crisis (GFC), during which US and European demand for Japan's exports dipped. In contrast, the Tiger economies during the same period successfully bounced back from their 1997 financial crisis, while Chinas rapid growth saw it take Japan's place as the world's second-largest economy (behind the US) in 2011 (BBC News 2011).