What is 'Japan Inc.'

Japan Inc. is a descriptor for that country’s traditional, highly centralized economic system.


Japan Inc. gained notoriety in the 1980s when western perception was that the alliance of Japan's government bureaucrats and corporations established and implemented unfair trade policies. However, Japan's prolonged 1990s recession diminished the reputation and power of Japan Inc. Since then, Japan has undergone major changes that made the Japan Inc. stereotype less prominent in the country's business culture.

A primary feature of Japan Inc. was the key role of Japan's trade ministry, which guided Japan's development in the postwar years, known as the Japanese Miracle. This growth was due to American investment immediately after the war and government regulation of the economy. The Japanese government restricted imports and promoted exports at the same time as the Bank of Japan (BoJ) undertook aggressive lending to companies to stimulate private investment. Close collaboration between corporate executives and government officials enabled the government to create winners. Another major characteristic of Japan Inc. was institutionalized business alliances among companies, known as keiretsu, which dominated Japan’s economic activity. The Japanese miracle created Japan Inc and lasted until the 1991 Japanese financial crisis.

Japan Inc to Japan in crisis

Japan produced the second-largest gross national product (GNP) after the United States in the 1970s, and by the late 1980s, ranked first in GNP per capita worldwide. In the early 1990s its economy stalled, causing what is known as Japan’s lost decade. It largely was due to speculation during a boom cycle. Record-low interest rates ignited the stock market and real estate speculation, which inflated valuations in the 1980s. The government unsuccessfully attempted to stimulate the economy through public works projects. And, the BOJ was slow to intervene, which may have instigated the crisis. Japan's Finance Ministry finally raised interest rates to stem speculation, which caused a stock market crash and debt crisis when borrowers defaulted on debt backed by speculative assets. This caused a banking crisis that led to consolidation and government bailouts.

During the lost decade, the economy stagnated amid low growth and deflation, with the stock markets near record lows and the property market remaining below pre-boom levels. Amid the crisis, Japanese consumers saved more and spent less, which reduced aggregate demand and produced deflation. Consumers further conserved money, resulting in a deflationary spiral. The country’s aging population along with Japan’s hesitance to raise the retirement age and increase taxes together with unrealistic monetary policy also were blamed for the lost decade.

  1. Japan ETF

    A Japan ETF is a type of exchange-traded fund that invests in ...
  2. JPY

    JPY is the currency abbreviation or the currency symbol for the ...
  3. Mrs. Watanabe

    Mrs. Watanabe describes the archetypical Japanese housewife and ...
  4. Abenomics

    Abenomics is a nickname for the multi-pronged economic program ...
  5. Japanese Government Bond - JGB

    Japanese Government Bond (JGB) is a bond issued by the government ...
  6. Asian Financial Crisis

    The Asian financial crisis was a series of currency devaluations ...
Related Articles
  1. Investing

    Five ETFs To Cash In On Japan’s Rise

    With the election of Shinzo Abe and birth of “Abenomics”, things are looking up for Japan's exporting dependent nation. For investors, Japan may finally be awaking from its doldrums.
  2. Insights

    The Relationship Between Japanese And Chinese Economies

    China counts on Japan for its manufacturing savvy, while Japan needs China's market to help it grow out of an economic funk.
  3. Insights

    A Risky Maneuver To Jumpstart Japan's Economy

    Japan's government and the Bank of Japan are buying large amounts of government bonds in an effort to spark economic activity, but there are great risks.
  4. Insights

    Japan's Heavy Exposure to Rising Rates

    While Japan has seen falling interest rates for over two decades, quantitative easing could mean this is about change. Just how exposed is the country?
  5. Investing

    Bank of Japan Announces Negative Interest Rates

    In a surprising move after a two-day monetary review meeting that ended Friday, the Bank of Japan adopted a negative interest rate policy in an attempt to revive country’s economy.
  6. Investing

    Negative Interest Rates Are Not Working in Japan

    Japan's negative interest rate policy has failed to generate economic growth, but the central bank keeps trying to print up prosperity.
  7. Trading

    Active Traders Are Turning Bullish on Japan (EWJ, DXJ)

    Bullish chart patterns shown on the chart of key ETFs suggest that now could be the time to take a look at investing in Japan.
  8. Insights

    Toshiba Highlights the Need for Faster Corporate Reform in Japan

    There is no doubt that Japan is still a leader in technology and production excellence, but that edge is in danger of being squandered.
  9. Investing

    2 ETFs for a Potential Japanese Rally (EWJ,DXJ)

    Here are two ETFs to play a potential rally in Japanese equities.
  1. What is the formula for calculating gross national product (GDP)?

    Find out how to calculate a country's gross national product (GNP), which is a method of accounting for the total income ... Read Answer >>
  2. How did the 2008 financial crisis affect the oil and gas sector?

    The 2008 financial crisis had a negative impact on the oil and gas sector as it led to a steep decline in oil and gas prices ... Read Answer >>
  3. What impact would deflation have on the national debt?

    Some common problems of deflation are a decrease in consumer spending, increased interest rates and an increase in the real ... Read Answer >>
  4. What Are the Best Measurements of Economic Growth?

    Learn how economists and statisticians track economic growth and why GDP might not be the best measurement of real economic ... Read Answer >>
Trading Center