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Rethinking Japan's Deflation Trap: On the Failure to Reach Kuroda Haruhiko's 2% Inflation Target

Published online by Cambridge University Press:  14 March 2025

R. Taggart Murphy
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Abstract

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Fifteen years ago, Akio Mikuni and I were working on a book that we ended up calling Japan's Policy Trap. At the time, a chorus of prominent foreigners was berating Japan's policy elite for its refusal to take their advice on lifting Japan out of deflation. But we believed that Japan faced more than just a stubborn unwillingness by politicians and bureaucrats to do what needed to be done. That's why we labelled Japan's dilemma a trap; after all, if you can escape from it easily, then it really isn't a trap.

Type
Research Article
Information
Asia-Pacific Journal , Volume 14 , Issue 3 , February 2016 , e2
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NCCreative Common License - ND
This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-No Derivatives licence (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is unaltered and is properly cited. The written permission of Cambridge University Press must be obtained for commercial re-use or in order to create a derivative work.
Copyright
Copyright © The Authors 2016

References

Notes

1 Restoring Japan's Economic Growth (Peterson Institute, 1998), p. 9.

2 “It's Baaack: Japan's Slump and the Return of the Liquidity Trap” in Brookings Papers on Economic Activity 2: 1998, p. 182.

3 Nippon Steel was the postwar descendent of the Japan Iron and Steel Co. Ltd, chartered by the Imperial Diet in 1934, that merged six private steel makers into the Imperial Japanese Government Steelworks that had been founded in the Meiji period. In 2012, the company merged with Sumitomo Metal to form Nippon Steel and Sumitomo Metal Corporation.

4 At least American and British financial institutions. The “universal banks” of continental Europe historically saw themselves as closer to the utility model of their Japanese counterparts.

5 Hamada Koichi and and Horiuchi Akiyoshi note that between 1947 and 1981, private sector banks provided from 71 to 83 percent of all external financing requirements of Japanese corporations with government financial institutions such as the Japan Development Bank providing an addition 8 to 14 percent. “The Political Economy of the Financial Market,” in Yamamura Kozo and Yasuba Yasukihci, eds., The Political Economy of Japan, vol. 1, The Domestic Transformation (Stanford University Press, 1987), p. 173.

6 Mikuni Akio and R. Taggart Murphy Japan's Policy Trap: Dollars, Deflation, and the Crisis of Japanese Finance (Brookings Institution Press, 2002), pp. 210, 212.

7 See Frank Packer and Mark Ryser “The Governance of Failure: An Anatomy of Corporate Bankruptcy in Japan” Working Paper Series 62 (Center on Japanese Economy and Business, Columbia University, 1992).

8 See R. Taggart Murphy Japan and the Shackles of the Past (Oxford University Press, 2014),

Chapter 11; Gavan McCormack and Satoko Oka Norimatsu, Resistant Islands: Okinawa Confronts Japan and the United States, (Rowman and Littlefield, 2012).

9 See here.

10 “BOJ ‘Disappointed’ with Meek Salary Talks,” The Japan Times, January 21, 2016, p. 6.

11 Posted at the National Bureau of Asian Research: Japan-US Discussion Forum https://japanforum.nbr.org/scripts/wa.exe?A0=LIST December. 28, 2015.

12 The latest outrage involves Freeport, long a conservative, well-run mining company that had weathered a century of commodity booms and busts. But three years ago, its chairman James Moffett ran up huge debts to finance a plunge into the oil and gas business. With oil prices plummeting, the company is now close to bankruptcy; its stock that traded in 2010 at $60 a share is now worth $4. Moffett has stepped down, but with a severance package of $79.4 million and an ongoing arrangement that will see him paid $1.5 million as a consultant. See James Stewart “Freeport-McMoRan Battles the Oil Slump” The New York Times, Jan. 21, 2016.