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. Nikkei

    The Nikkei is short for Japan's Nikkei 225 Stock Average, the ...
  2. Abenomics

    Abenomics is a nickname for the multi-pronged economic program ...
  3. Domestic Corporate Goods Price ...

    Domestic Corporate Goods Price Index Japan is an index that measures ...
  4. Mrs. Watanabe

    Mrs. Watanabe describes the archetypical Japanese housewife and ...
  5. Corruption

    Corruption is dishonest behavior by those in positions of power, ...
  6. Close Corporation Plan

    A close corporation plan is a form of business buy-sell agreement. ...
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

    3 Economic Challenges Japan Faces in 2016

    Understand the important challenges for Shinzo Abe and the Bank of Japan to help Japan's economy escape deflation in the coming year.
  3. 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?
  4. Financial Advisor

    Why Investors are Bailing on Japanese Stocks

    Foreign investors have pulled out of Japanese equities to the tune of $46 billion so far this year.
  5. Investing

    Jumping for an Old Japan ETF

    This Japan ETF is topping U.S. stocks this year, but it has some drawbacks.
  6. 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.
  7. Investing

    Deflation and Debt: Is the United States the New Japan?

    Discover how mainstream macroeconomics has failed Japan and why the United States should take care to avoid Japan's borrow, spend and print model.
  8. Investing

    Why Money Flow From Japan Matters to the U.S. Equity Market

    Discover why Japanese savers and investors may have a lot to say about the future of the U.S. equity market, and why the trade deficit is responsible.
  1. What is the Difference Between an Industry and a Sector?

    The terms industry and sector are often used interchangeably, but they have slightly different meanings, with a sector being ... Read Answer >>
  2. What are the biggest trends affecting the profitability of the financial services ...

    Explore the trends that most affect the financial services sector, including the role of central bank policy and challenges ... Read Answer >>
  3. Is there a world currency? If so, what is it?

    There is no such thing as a world currency. However, since World War II, the dominant or reserve currency of the world has ... Read Answer >>
Trading Center