Deregulation in Japan and the role of Naiatsu (domestic pressure)

Abstract

This paper examines the progress of deregulation in Japan, and attempts to explain why that progress seems to have accelerated in recent years, despite an entrenched structure of vested interests. Most observers cite the role of gaiatsu, or foreign pressure, particularly from the USA. But this explanation seems inadequate, as evidenced by the fact that the current deregulation program includes measures that have not been explicitly requested by the USA or other foreign countries. I present an alternative view here that focuses on five domestic factors: the installation of the Hosokawa administration that began pushing for regulatory reform in 1993; fortuitous political events that sustained this momentum even after the LDP returned to power; the government's weak fiscal position, which forced it to reject the typical Keynesian approach of 'pump-priming' and instead pursue deregulation to invigorate the economy; the relatively open deliberations of the Commission on Administrative Reform; and the increasing internationalization of Japanese firms. These factors combined to produce naiatsu, or domestic pressure, to step up efforts in Japan to eliminate or ease regulations.