Japan financial system, the bubble economy and the economic management of the Japanese government

Abstract

In this paper, the Japanese development pattern, especially the Japanese financial system will be discussed. Financial systems can be classified into two types: bank-oriented type and market-oriented type. The traditional Japanese system is a bank-oriented one; the US and the UK take the market-oriented one. The role of the Japanese financial sector in supporting its real economy is indispensable. This property of the financial system is also one of the most important reasons for the bubble economy during the late 1980s. After the collapse of the bubble economy, the Japanese authority failed again to adjust the production-orientated and consume-depreciated industrial development style. Japanese economy experienced a long-term economic recession and did not recover until recent years. In 1990s, after the burst of the bubble, as risks were concentrated in the commercial banking, Japanese banks were allowed to take time to write off their non-performing loans under a bank-oriented system. Until recently, most observers saw Japan's response to its last crisis as a failure. But now, we also can find out some good points while comparing with the global financial crisis.