Japan's "Economic Miracle": What Happened?

What happened to Japan's "economic miracle?" Since the 1990s, Japan has been experiencing slow economic growth, income contraction, and recession along with high unemployment and other problems. These trends since the 1990s compare starkly with the 1970s and 1980s, when Japan's rapid economic growth and development drew admiration from much of the world, including many in the United States, and thrust Japan into the elite club of major industrialized countries. Japan even became established in the minds of some as a model for economic growth and development for other economies to follow, particularly those in East Asia. But Japan's difficulties have cast a cloud over its economic prospects and tarnished, perhaps unnecessarily so, its image as a leading economic power in Asia and the world. Economic conditions in Japan are having a major impact on U.S.-Japan economic relations and on the overall U.S.-Japan relationship. A strong and stable Japanese economy is important to the United States and the world. Japan is the second largest industrialized economy in the world. If Japan's economy continues to grow slowly or contract, U.S. exports to Japan would probably continue to decline, creating problems for U.S. exporters trying to build a market there. A stagnant or contracting Japanese economy diminishes overall world economic growth and world income. In the long-term repairing Japan's economic difficulties may present the United States with significant opportunities. Many of the structural problems that some experts have cited as a cause of Japan's less than stellar growth have also been impediments to U.S. exports and investments in Japan and the source of much friction between the two countries. If Japan can successfully address these structural problems, it would likely improve market access in Japan and help alleviate the bilateral trade and investment friction. As important as Japan's economy is to the United States, the direct policy influence the United States can have on the Japanese economy is limited. Japan's economic problems are a function of its own macroeconomic policies and structural deficiencies. Decisions on these issues are within the purview of the Japanese government. The United States, including the Congress, can press Japan to pursue macroeconomic policies and microeconomic measures that will lead to sustained economic growth. In the end, the best U.S. defense against continued economic stagnation in Japan will be maintaining U.S. economic strength. This report will be updated as events in Japan continue to evolve.