Japan's Financial Slump

What is it about?

This book critically evaluates the salient features of Japanese relation-based banking and the Anglo-American mode of banking to explain the nature and extent of transition failure that caused a prolonged financial and economic slump in Japan. Taking an institutional perspective, it shows how the new institutional settings made the credit monitoring and supervision mechanisms ineffective letting the financial system become fragile due to both country specific characteristics and inherent limitations in the new institutional settings. In doing so, the book blends various theoretical perspectives and sheds light on Japan's informal institutions as well. The discussions are rich in analytical interpretation and empirical evidence, portraying a comprehensive picture of the traditional as well as the contemporary financial system in Japan. It concludes with a set of lessons to be learned from Japan's experience that will help future financial reforms elsewhere as well as in Japan.

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Why is it important?

The arguments contained in this book are primarily based on the perspective of institutional requirements of a financial system to perform its credit monitoring and supervising functions. This book, I believe, explores a new hypothesis that can help to shed light on why the Japanese banks and regulators have been trapped in a unique type of “transition failure” still at the end of the 2000 decade. My analysis suggests that it was not feasible for the Japanese financial system to effectively transform into the Anglo-American system for a number of reasons.