The house of the setting sun, part 3

Hubris and nemesis

‘The United States exports more to the province of Ontario than Japan.’

—Ronald Reagan

The ’80s was an era of financial deregulation and globalisation. The supervision of the banking and securities industries was loosened, cartels in the financial sector were uprooted, and firms were exposed to heightened competition. As the international mobility of capital increased, huge sums of money could be transferred between countries and between different classes of asset in a split second. Although the ’80s was also an era of booming international trade, the increase in international flows of goods and services was nonetheless greatly outpaced by the increase in financial flows, with foreign exchange transactions alone reaching half a trillion dollars per day. The increased use of offshore financial centres free from regulation further amplified the volume of ‘hot money’ available, flitting from country to country in search of the highest returns around the globe.

It was in this context that Japan experienced its second bubble economy, this one being far larger and far more destructive than the bubble of the early ’70s (discussed in part 2). Both land and equity values exploded from 1986, with the stock market and land prices peaking in 1989 and 1991 respectively. The absurdity of the bubble can perhaps be best illustrated by land prices: in 1989, the ratio of the value of land to GDP was 0.7 in the United States, while in Japan, the ratio was 5.2. Although the United States is around twenty-six times bigger than Japan in land area, in 1989, Japanese land was worth almost four times as much.

The free movement of capital, gradually achieved over the course of the ’70s and ’80s, meant that a bubble in the domestic Japanese economy would soon have enormous and immediate international consequences, something that would not necessarily have been true even fifteen years prior: a net inflow of $2bn in 1980 soon became an outflow of $10bn, then $65bn in 1985, $132bn in 1986, $137bn in 1987, and $131bn in 1988. The figure for 1987 represented 86.6% of the net capital outflows of the major capital exporting countries, and was double the already record current account surplus. This financial tsunami was far bigger than even the OPEC surpluses of the ’70s. The sheer volume of money that was being spewed out of the country meant that the world could gradually be reshaped in Japan’s image. Outbidding and swallowing all foreign rivals, Japanese firms bought both financial and real assets across the world, from car factories in Northern England to the Rockefeller Center in New York. Less conspicuously for Western European and North American politicians, Asia was now stuffed with Japanese factories, with Japanese firms, escaping rapidly increasing wages at home, turning the rest of Asia into their new sweatshop.

Most analysis of Japanese capital flows divides them into portfolio flows (financial investments) and foreign direct investment (real assets). At the peak of portfolio flows in 1986, Japan purchased 75% of all US Treasury bonds auctioned. At the peak of foreign direct investment in 1990, Japan spent $46bn, making Japan the world’s biggest source of FDI, half of which was directed at Europe and the United States. However, the official figures still underestimate the extent of outward capital flows from Japan. Under international pressure over both the size of Japan’s trade surpluses and the pace of foreign acquisitions by Japanese companies, the Ministry of Finance attempted to massage the figures by recategorising capital outflows as ‘imports’ through such items as offshore gold accounts and aircraft leasing. In 1984, nearly two-hundred tonnes of gold was shipped to Japan; in 1986, nearly six-hundred tonnes was shipped. However, most of the ‘imported’ gold never actually reached Japan; instead, it was stored in vaults in London. In addition to these methods, many capital flows were simply unaccounted for, with the ‘errors and omissions’ category reaching a staggering ¥3tn in 1989.

The true figures will probably never be known, but it was apparent to many observers that these flows appeared to defy any and all economic logic. In the ’70s, Japanese capital flows were roughly equal to the size of the current account surplus, which is what we would probably expect. However, in the ’80s, this changed: now capital flows both preceded increases in the current account surplus in timing and far exceeded the current account surplus in size. And even when the relative returns in Yen were negative, such flows persisted, such as in the mid-’80s, when the intention of the Plaza Accord to strengthen the Yen was in no doubt. This should have discouraged such activities overseas, and yet it seemingly did not.

Not all of the money sloshing around the Japanese economy in the late ’80s was wasted on pure speculation. Substantial amounts found their way into corporate investment plans: new greenfield sites were rolled out, the latest machinery ordered, production facilities upgraded, and shiny new corporate headquarters built. Investment soared, with Japan going on one of the biggest capital expenditure sprees in peacetime history. Between 1985 and 1989, ¥303tn worth of capital investment took place; each year, Japan invested the equivalent of the GDP of France. Labour markets were tight, and GDP growth averaged 5.5% from 1986 to 1990. Inflation, as measured by CPI, remained surprisingly low, averaging just 1.3% in the second half of the ’80s, and in 1988, the problem appeared to be deflation, not inflation — highly significant when inflation had both obsessed and terrified economists from across the world for most of the previous two decades.

The dawn of a new era seemed to have broken, and thousands of articles were written about Japan’s new ‘miracle’ economy. Business gurus taught Western firms about Japanese business culture and production techniques. Many visitors now thought that Japan was the most modern and advanced country in the entire world. It probably should have worried more observers that no economist, ‘Keynesian’ or ‘monetarist’ (as the dividing lines were at this time), could explain what was happening.

---

Asset prices tumbled from 1990 onwards. Between January 1990 and December 1994, the value of stocks and land halved. Many companies and individuals who had borrowed to purchase land speculatively found themselves unable to service their heavy debts. Corporate and individual bankruptcies surged to post-war highs. Japanese investors pulled out of their overseas investments in a stampede. Several Japanese banks and securities firms became insolvent, something that was previously unheard of. The extended boom of the ’80s became the extended bust of the ’90s, the biggest economic slump in Japan since the ’30s.

Some economists seemed relieved. The downturn was evidence that Japan’s ‘peacetime war economy’ was not so successful after all. What had previously been praised about Japan — close ties between the private sector and the government, monitoring by the main banks, the family-style corporate system, et cetera — were now suddenly nothing more than the thin veneer hiding a basically fraudulent system built upon cronyism, inefficiency, opacity, and corruption. The economic system that had, at least outwardly, served the country so well in previous decades was quickly blamed for the recession. Both inside and outside of Japan, influential voices began to call for a total reformation of the Japanese economic system, as had happened after the mini-bust of the ’70s. However, this time, these voices could not be quietened nearly so easily.

As in the ’70s, the role of credit creation is key to understanding the bubble. From around 1986 onwards, banks had lent aggressively, with the annual loan growth of the city banks averaging 15% in the late ’80s. Meanwhile, the ability of the economy to service these loans — that is to say, national income growth — was only about half as fast. It was a classic case of unproductive credit creation. Money was produced by the banking system on a massive scale, but not used productively. Instead, it was used for speculation or for conspicuous consumption.

As money was created out of thin air and injected into the real estate market, the demand for land rose. Since the supply of land is in effect fixed, land prices thus had to rise. This led to gains for speculators, which then led to more people piling into the market. Worse still, rising land prices encouraged Japanese bankers to lend even more aggressively. The Japanese banking system always relied heavily upon collateral, almost always land collateral. Banks preferred the collateral method because it was simple: the loan officers checked the annually published official land prices of each area, and then lent up to 70% of this market value, a rule which was imposed by the Ministry of Finance itself. The land collateral principle fit the designs of policymakers who were directing credit towards strategic industries and did want consumers to be able to borrow money, as most land holdings in the major cities were in the hands of big firms, allowing them to easily raise funds. As land prices in the major cities increased, Japanese firms were assured of an increased flow of credit from the banks.

Land prices had climbed steadily for most of the post-war era. There were some interruptions, such as in the immediate aftermath of the mini-bubble of the early ’70s, but to the generation of loan officers on the job in the ’80s, it seemed as though land prices could never fall. A classic bubble had developed: rising prices led to further investment, which pushed up prices even more, thus encouraging even more speculation, with prices becoming completely disconnected from economic fundamentals.

In the late ’80s, banks became less selective in who they gave loans to, aggressively searching for new customers and encouraging both new and existing customers to borrow more and more, projecting big gains from future increases in the value of land. The proportion of outstanding loans that had been used for real estate speculation was striking. By the end of 1989, loans classified as being for ‘real estate’ had reached 12% of the total loans of all banks, and loans classified as being for ‘construction’ accounted for another 5.4%. Furthermore, many companies and banks set up non-bank financial institutions that borrowed money from banks and then lent it on to real estate speculators; this represented a further 10% of outstanding loans. In total, ‘bubble’ loans already represented up to 27% of total loans and 25% of nominal GDP in 1989. In fact, these figures are an underestimate: many loans classified as lending for other purposes were in fact being diverted to real estate speculation, even loans classified as being for ‘manufacturing’. This meant that more than one third of all credit was being used for basically wasteful purposes. By contrast, in the late ’70s, the share of loans to these sectors was only 15% of total loans and 9.9% of nominal GDP.

Finally, after years of exuberant loan growth, Bank of Japan action in 1989 meant that the banks abruptly moved towards restriction. Half a year later, the stock market peaked and land prices stopped rising. As no more newly-created money could enter asset markets, asset prices could not increase as they had before. Speculators were forced to sell up. In 1990 alone, the Nikkei 225 fell by 32% and land prices began their steep decline. More and more real estate speculators became distressed, and concomitantly, more and more bank loans turned bad. Moreover, as banks realised the sheer scale of the ¥99tn of ‘bubble’ loans that could turn bad, they started to also restrict lending not only to real estate, but also to manufacturing firms that had nothing to do with the bubble.

The implications for the Japanese economy as a whole were dire. SMEs represented 70% of total employment, yet were effectively unable to raise money directly from the market, making them entirely dependent upon bank financing. Unemployment began to rise from 1992, with five million people ultimately losing their jobs. Even the largest firms were forced to cut costs, consumer demand slumped, and Japan sank into a prolonged recession.

---

By mid-1995, Japan’s recession had lasted far longer than most economists had predicted. Analysts and investors had been holding out for a full-blown recovery. The Yen had risen to 80/$, unthinkable just half a year earlier. This put exporters under pressure, leading to faltering demand, slowing production growth, and a build-up of inventories. Increased competition and deregulation put further deflationary pressure on the economy, and price destruction and layoffs meant that consumers postponed purchases. Meanwhile, the banking system was weighed down by bad debts.

Unexpected by most observers, the economy staged a sudden recovery in 1996, growing by around 4%, but this was not sustained. The economy slumped again in 1997 and 1998. It seemed to take the Yen with it this time: the Yen collapsed to nearly 147/$ in June 1998, around 80% weaker than the Yen’s peak in April 1995. Yet the weak Yen did not help the Japanese economy; on the contrary, most analysts now considered it a sign of weakness, of capital flight from a country that seemed headed towards total economic meltdown. Attempts by the authorities to stimulate the economy had been to no avail.

Most observers were once again surprised by a sharp recovery of the economy in 1999, which came with a more than 50% rise in the Nikkei 225. But the stock market peaked in the first quarter of 2000, and both the stock market and economy slumped once again from the middle of the same year. By early 2002, most commentators had given up hope of a speedy recovery. There had been too many false starts. Each time the economy recovered, it seemed to sink back into recession soon after.

Why was this happening? Since 1991, the Ministry of Finance had been trying to boost the economy with the interest rate weapon. The Bank of Japan lowered the official discount rate ten times in the ’90s. In July 1991, the discount rate stood at 6%; by September 1993, it had been lowered seven times, reaching a historical low of 1.75%. It was further lowered to 1% in April 1995 and to 0.5% in September 1995. By the end of the ’90s, Japan was effectively operating a zero-rate policy. As interest rate reductions alone had failed to revive the economy, politicians also began pushing for fiscal stimulus. Over the course of the ’90s, more than a dozen large-scale spending packages were implemented, amounting to ¥145tn. This, apparently, was also to no avail.

If both the Keynesian and monetarist prescriptions did not work, what was there left to do? They started to listen to those voices who argued that the prolonged recession was due to fundamental problems with the Japanese economic system. The only way out was deep structural reform, such as deregulation and the opening of markets. By 1998, a broad consensus had emerged in favour of a historic structural transformation. Business leaders, politicians, and — surprisingly — even members of the bureaucracy argued that fundamental changes to the Japanese way of life were now necessary.

This was obviously a tempting conclusion for the Japanese to make. Gazing enviously across the Pacific, they would see the ’90s American economy go from strength to strength, with high economic growth, record low unemployment, and rising asset prices. This, the Japanese were often told, was due to productivity gains from free market-orientated reform under Reagan and Bush in the ’80s; and while structural change was always going to be painful, as any American who was alive in the early ’80s would have remembered, the fruits of this were now finally ripening. Since 1996, the annual G7 Summit had become a platform for the American President and his Treasury Secretary to assert the superiority of US-style capitalism. If a country wanted to be successful, they would frequently proclaim, deregulation, liberalisation, and privatisation were necessary. With Japan (and from 1997, the rest of Asia) in a slump, American pressure — and with it the pressure of international organisations — steadily mounted on Japan. It had been conveniently forgotten that just one decade prior, the boot was firmly on the other foot: in 1991, the American economy was in recession, and it was Japan that seemed to be the future. Most commentators, so it seems, are incapable of separating their assessment of economic systems as a whole from the business cycle, which is mostly determined by changes in the rate of credit creation.

So why did the Keynesian prescriptions fail so totally? After all, as we know from the experience of March 2020, fiscal policy can revive an economy in even the direst of circumstances, at least in the short term. The question is how the budget deficit is funded. In the case of pure fiscal policy — dominant during the ’90s in Japan — the Ministry of Finance would issue government bonds to raise the money. As a result, the money being used to stimulate the economy is taken from the private sector itself — thus ‘crowding out’ the private sector from funds. To fund the deficit, investors in government bonds, such as life insurers, have to pull the money out of other investments. Fiscal policy does not create new purchasing power, but merely reallocates already created purchasing power. As such, pure fiscal policy is largely growth neutral. Indeed, it has been shown that for every yen the Japanese government spent on fiscal stimulation in the ’90s, private demand shrank by one yen.

Put simply, credit creation determines the size of the economic pie. Fiscal policy determines how that pie is divided up between the private and public sectors. If credit creation is not also increased, increased fiscal expenditure must therefore reduce the amount of purchasing power available to the private sector. Hence, without an increase in credit creation, the private sector must shrink. In particular, the main customers of the banks, the small firms, suffered from a credit crunch for most of the ’90s, depressing both investment and consumption.

The necessary and sufficient condition for an economic recovery is the creation of new purchasing power. Purchasing power is created by the banking system and the central bank. Policies to create a recovery therefore need to aim at increasing the credit creation of either one or both of these. Even if policies to help banks were slow in showing results, this would not prevent a recovery, so long as the central bank fulfils its mandate by creating new purchasing power in lieu of the banks. As such, from 1992 onwards, a recovery in Japan could have been triggered at any time. A sufficient condition for a recovery would have been for the Bank of Japan to turn on the printing presses, just as central banks around the globe did in March 2020.

Inflation would not have resulted from such money creation. Of course, if the economy was operating close to capacity, then printing too much money would have indeed led to inflation. But this was certainly not the case in ’90s Japan, where both capital and labour were being severely underutilised, meaning that inflation was only a very distant risk.

One method would be for banks paralysed by bad debt to issue commercial paper or corporate bonds. This paper could then have been bought by the Bank of Japan with newly-printed yen. This would have allowed the banks to fund the SMEs who were caught by the credit crunch. The Bank of Japan could also have monetised the fiscal packages that the government had implemented, just as it had monetised fiscal spending decades earlier. If it so wished, the Bank of Japan could have solved the ‘bad debt problem’ in its entirety in one morning by purchasing the bad debt from the banks at face value, as it had in fact done after the Second World War (see part 1). Another technique would have been for the central bank to corner a market in which the banks operated heavily, creating a small bubble and boosting the profitability of the banks, thus making them more likely to lend.

Credit creation, even once we exclude the bubble sectors, had fallen sharply in Japan from 1990 onwards. A year later, nominal GDP also fell. Credit creation remained minimal and even turned negative towards the end of 1994. This resulted in negative nominal GDP growth in early 1995, something that had not happened in Japan since 1931.

Most modern economists would agree that if bank credit creation is collapsing, it is the duty of the central bank to step in to counteract this. So how much money did the Bank of Japan create in first half of the ’90s? In 1992, it was in negative territory; in 1993, the amount it created was minimal; in 1994, it rose somewhat, only to fall sharply into negative territory in early 1995. From the middle of 1995 to early 1997, credit creation rose, but then fell once more in late 1997. In other words, for most of the ’90s, the Bank of Japan effectively sat on its hands, failing to print money aggressively or persistently enough to create a lasting recovery. In March 1998, the Bank of Japan suddenly boosted credit creation sharply to the highest levels since 1974, triggering a rapid stock market recovery. They then turned off the taps in 1999, and began actively withdrawing money from the economy for much of that year. It repeated this cycle in 2001 and 2002.

---

Although the Bank of Japan was responsible for implementing monetary policy in this period, the Ministry of Finance had oversight and exercised influence over short-term rates and foreign exchange policy. Nonetheless, for the most part, the Bank of Japan had control over credit creation.

We have discussed the institutional arrangements in Japanese monetary policy in part 2. Given the legal facts, there seemed little doubt to most observers that the Ministry of Finance was indeed in charge, and that the bubble was created by the Ministry of Finance through excessively low interest rates. In fact, from 1984 to 1989, Satoshi Sumita, an ex-Vice Minister of the Ministry of Finance, was Governor of the Bank of Japan. The Bank of Japan — so the argument goes — with its professional staff knew better than to maintain such low interest rates for so long, but given its weak legal position vis-à-vis the Ministry of Finance, it could not do anything beyond voicing its discontent. Therefore, the Ministry of Finance, who were primarily responsible for the bubble, had to be punished by stripping it of many of its powers and breaking it up.

The above is similar to the picture painted by Yasushi Mieno, Governor of the Bank of Japan from 1989 to 1994. When he was appointed in 1989, Mieno noticed that the monetary policies of his predecessor, Sumita, were far too loose. Miena did not like the outcome of this. Japan, he lamented, was becoming a nation of ‘haves’ and ‘have-nots’, with landowners becoming extremely rich over the course of the ’80s. He decided to end the bubble, increasing the discount rate only a fortnight after becoming Governor, delivering the infamous ‘Christmas Present’ of 1989, triggering a collapse in asset prices. Stocks and shares were still hitting new lows more than a decade on. By 2002, land prices had declined four-fifths from their 1991 peak, and were still falling.

A public dispute between Makoto Utsumi, the Ministry of Finance’s Vice Minister of International Finance, and the Bank of Japan Governor Mieno erupted in 1990. Through criticising the injustices and excesses of the bubble, Mieno gained the moral upper hand. Proclaiming that he had never owned a stock in his life, he seemed to be a clean pair of hands, dedicated only to creating an economy that worked for the Japanese people. The media even proclaimed him the ‘Onihei of the Heisei era’ — effectively, a modern day Robin Hood.

Soon after his retirement as Governor in December 1994, Mieno embarked on another public campaign. In speeches to various associations and interest groups across the country, he called for a change to the Bank of Japan Law. Mieno argued that the Ministry of Finance was responsible for pushing the Bank of Japan into the wrong policies; to avoid such problems in the future, the Bank of Japan needed to be given full legal independence. Despite his populist persona, this was in fact a policy that, alongside inflation targeting, was very much internationally in vogue amongst economic technocrats in the ’90s.

Mieno’s arguments were sympathetically received by Prime Minister Ryutaro Hashimoto and his three-party coalition government. Like many outside observers, the government’s project team for administrative reform blamed the Ministry of Finance for Japan’s troubles in the ’90s and hence proposed to take away many of the Ministry’s powers. The government’s proposals for a new Bank of Japan Law included full Bank of Japan independence and the removal of the Ministry of Finance’s power to appoint and dismiss Bank of Japan officers. The new law became effective in 1998.

But not only did the Ministry of Finance lose control over monetary policy. 1998 is also notable as the year that the Ministry of Finance lost another of its main powers: its monopoly over the budget. For the first time in the post-war era, it was the politicians who drew up the stimulus packages. The Ministry of Finance also lost its power over banking supervision to an independent regulator, and lost its licensing power thanks to the ‘Big Bang’ deregulatory program. And finally, to add insult to injury, in 2001, the Ministry of Finance even lost its grand old name, going from Ōkura-shō to Zaimu-shō. (It is still known as the ‘Ministry of Finance’ in English.)

---

While the Ministry of Finance clearly had strong incentives to create a recovery, given that it had taken most of the blame for the bubble, the position of the Bank of Japan is somewhat less clear.

Was the Bank of Japan just incompetent? That seems unlikely. The Bank of Japan had successfully created economic recoveries at numerous times in the previous decades. There is evidence that ‘window guidance’ — the policy by which the Bank of Japan decided to aggregate loan growth for the economy during the post-war period — continued until at least June 1991. Low interest rates, as demanded by the Plaza Accord, could have been semi-secretly counteracted by this kind of policy.

It is true that the Bank of Japan Governor during the bubble period, Sumita, was an ex-Ministry of Finance man, not a true-born Bank of Japan man. These sort of things matter even in Britain, and matter a lot more in Japan. The way that the Bank of Japan operated during this period was that whenever a Bank of Japan alumni failed to be appointed Governor, they would cut the Ministry of Finance appointee out of the discussion on ‘window guidance’, instead barraging them with information about interest and exchange rates, which they would then naturally assume to be the Bank’s main policy tools.

The first true-born Bank of Japan ‘prince’, picked by Governor Ichimada, was Tadaki Sasaki. Sasaki was followed by Haruo Mayekawa, Yasushi Mieno, and Toshihiko Fukui. Usually, their first big appointment would be that of head of the Banking Department, followed by five years as Deputy Governor while a Ministry of Finance appointee was the official head, followed by five years as Governor in their own right. As such, the number of people who actually controlled monetary policy in Japan was very small indeed. From 1945 to 1998, twenty-four different individuals held the office of Prime Minister, yet over the same time, Japanese monetary policy was effectively controlled by only six men: Araki, Ichimada, Sasaki, Mayekawa, Mieno, and Fukui. Each picked their successor at an early age. The head of the Bank of Japan’s Banking Department from 1975-8 was Mieno. After this, Mieno served as Deputy Governor from 1984-9. As such, we can say that Mieno popped his own bubble once he became Governor in 1989.

From 1958 to 1960, Mieno had been posted abroad to the United States, working under future Bank of Japan Governor Haruo Mayekawa, head of the Bank of Japan mission in New York. When Sasaki left as Governor and handed the baton to Mayekawa, he became head of the Japanese Association of Corporate Executives. In 1983, he called for a five-year plan to transform and liberalise the Japanese economy in a report entitled ‘Toward Consciousness and Behaviour of a World Nation’. The plan called on Japan to help the world by speedily opening up its markets, arguing that the economy ‘must be changed from one looking after the national interest to one looking after the common world interest’. The plan particularly emphasised the importance of the ‘complete’ liberalisation of the agricultural, financial, and service sectors. It also demanded a greater role for politicians in policymaking, an end to bureaucratic guidance of the private sector, and a significant strengthening of the office of Prime Minister. These changes, Sasaki argued, would benefit not only Japan, but the world: ‘…such a bold market opening would not only help in solving the economic friction with Europe and the US, but if the economic structure changes, this would also lead to a continued vitality of the Japanese economy’. At the time, this represented a serious attack on the elite of the postwar system. He followed this up with another report calling for the Japanese banks to expand their business activities abroad. This resulted in the deregulation of the foreign business of Japanese banks abroad, and created the institutional setting within which the Bank of Japan’s ‘window guidance’ created a bubble and the surge in Japanese capital outflows of the ’80s.

In 1985, Japanese Prime Minister Yasuhiro Nakasone formed the ‘Study Group on Adjusting the Economic Structure for International Harmony’. Nakasone appointed former Bank of Japan Governor Mayekawa — Sasaki’s successor and Mieno’s predecessor — to head the group, with his brief being to ‘conduct a study on policy measures, from medium to long term perspectives, concerning Japan’s economic and social structure and management’. The report that the ‘Study Group’ produced became known as the ‘Mayekawa Report’. It echoed Sasaki’s demands: ‘…the time has thus come for Japan to make a historical transformation in its traditional policies on economic management and the nation’s lifestyle… there can be no further economic development without this transformation’. The medium term goal was to reduce the nation’s current account surplus, somewhat strange for a Japanese commission headed by Japanese people. Indeed, the report read almost like a wish list of senior US trade negotiators.

As a result of their actions, the Bank of Japan gained full independence from the Ministry of Finance and increased its power over the Japanese economy. In the process, the Bank satisfied many key demands of Japan’s major trading partners, most notably the United States, by reducing the country’s trade surplus as a percentage of GDP and transitioning the economy away from the early post-war, ‘peacetime war economy’ economic model and towards a more deregulated, ‘Western-style’ economic model, especially under Prime Minister Junichiro Koizumi, who made the case for neoliberal reform, and Shinzo Abe, who had his ‘three arrows’ of monetary easing, fiscal stimulus, and structural reforms. Modern Japan is now increasingly reliant upon the stock market for corporate financing. Even foreign takeovers, previously more or less impossible, are now not at all unheard of.

Without the gigantic ’80s bubble and the subsequent multi-decade recession, it is extremely unlikely that Japan would have moved so fast, if at all. It is entirely plausible that Japan could have continued their early post-war economic model to the present day, pursuing policies more akin to the modern People’s Republic of China, with a continued focus on high investments and high exports, suppressing imports and consumption at home and making life difficult for Europe and the United States. Instead, for reasons that may forever remain somewhat shrouded in mystery, the Japanese went down a very different path.