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Japan's Bubble, Deflation, and Long-term Stagnation$
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Koichi Hamada, Anil K Kashyap, and David E. Weinstein

Print publication date: 2010

Print ISBN-13: 9780262014892

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262014892.001.0001

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International Financial Integration and Japanese Economic Performance

International Financial Integration and Japanese Economic Performance

(p.129) 5 International Financial Integration and Japanese Economic Performance
Japan's Bubble, Deflation, and Long-term Stagnation

Philip R. Lane

The MIT Press

This chapter examines the impact of international factors on Japan’s lost decade, with an emphasis on how financial integration with the rest of the world affected the Japanese economy. It considers two primary possible causes of the net foreign asset position: Demographic factors by virtue of their impact on savings and investment, and movements in output per capita if expected investment returns are lower in relatively rich economies. The chapter then shows that these flows have a stabilizing effect in the face of fluctuations in private investment flows and exchange rate swings. It traces Japan’s increased integration with the rest of the world that commenced in the 1980s, which saw the easing of capital controls and the deregulation of financial markets. Over the next two decades, Japan steadily built a reputation as a large net creditor nation. The chapter discusses the link between foreign assets and exchange rates, as well as real appreciation of the yen.

Keywords:   yen, lost decade, financial integration, savings, investment, exchange rate, foreign assets, appreciation, Japan

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