From the mid-1950s until early 1970 Japan enjoyed high economic growth. In the latter part of the 1980s Japan’s economic performance was outstanding, seeing both high growth and a subdued inflation rate.

However, what appeared to be good economic performance at the time, we now recognise as a bubble economy. After the bubble burst, the Japanese economy entered a long phase of weak growth, often referred to as the “lost decades”.

What is the reason for this low growth?

Firstly, the bursting bubble. This undoubtedly affected the Japanese economy. But, as can be seen in the experience of many advanced countries in the Great Recession after 2007, the decline in growth rate itself was universally observed and not unique to Japan. Though important, the bubble and its bursting are only part of the story.

Secondly, policy failure. There is no doubt that the delay in dealing with massive non-performing loans was most critical here. However, this problem has now been resolved. Japanese banks are now even more robust than their international peers, as is shown in their credit ratings or the growth of cross-border lending.

Read the entire article on the ANU College of Asia and Pacific website.