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No. 37 — October 1, 1999

 

Feature Article

RICH AND POOR IN JAPAN: HOW WIDE IS THE GAP? by Douglas Ostrom

Summary

For most of the postwar period, Japan has appeared to be more successful than other industrial nations at meeting the widely shared goal of bringing the incomes of the poor closer to those of the rich. Moreover, until the slowdown of the 1990s, the world's second-largest economy seemed to have accomplished this difficult task while maintaining a high rate of growth. For this reason, poverty-stricken nations in Asia and elsewhere have found the Japanese development model particularly appealing.

The protracted periods of sluggish growth during this decade have done more than shatter the belief that Japan's economy would expand faster year in and year out than those of other advanced countries. Although impeded by less-than-complete cooperation from Japanese officials, international researchers have collected data that increasingly indicates that incomes in recent decades have been no more equally distributed in Japan than in most other countries with mature economies. Japan, reversing the direction of its early postwar history, shares with these nations a trend toward less equal incomes.

The slump actually has made the distribution of financial and real assets more equitable today than in the 1980s, but it does not appear to have had much impact on income distribution. The trend toward greater disparities in income began before the economic "bubble" of the late 1980s. It continued through those go-go years and has persisted in the current era of little or no growth. With the economic pie increasing slowly, if at all, public concern about income distribution is likely to rise, especially if, as appears to be the case, the poor are getting an ever-smaller fraction of the pie.

American acceptance of these conclusions regarding Japan may be hampered by numerous findings indicating that with respect to income distribution, this country, and not Japan, is the outlier among industrial nations. The United States stands alone in the wide divergence of earnings between its rich and its poor. Moreover, policymakers and voters appear to attach less importance to income differences than do their foreign counterparts, making an appreciation of this issue in other countries more difficult. Be that as it may, the income gap in Japan — and the fact that it is widening — is likely to affect both the political climate and economic policy in Japan and, by extension, to have implications for U.S. interests.

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Weekly Review

G-7 CONFAB SOWS DOUBTS ABOUT JAPANESE MONETARY POLICY by Douglas Ostrom

As Finance Minister Kiichi Miyazawa and Bank of Japan Governor Masaru Hayami headed off for Washington to attend the September 25 meeting of finance ministers and central bank governors from the Group of Seven industrial countries, observers might have been forgiven for wondering whether the pair would argue in front of their assembled peers. The two men apparently have been at loggerheads over the direction of Japanese monetary policy and, by extension, the appropriateness of various measures to stem the yen's recent jump in value.

 

TOKYO GIVES FOREIGN GROUP FIRST SHOT AT FAILED LONG-TERM CREDIT BANK by Jon Choy

Nearly a year after taking control of debt-ridden Long-Term Credit Bank of Japan, Ltd., financial market regulators have given a foreign-led group of investors the first chance to purchase the failed lender. Never before in postwar Japan has a major, government-seized bank been sold to private buyers for rehabilitation or have outsiders had the chance to acquire a top financial institution. The government hopes that these milestones will mark important progress in its drive to restructure and revitalize Japan's ailing banking industry.

 

INDUSTRIALIZED WORLD BACKS DEBT RELIEF FOR POOREST COUNTRIES by Marc Castellano

The World Bank/International Monetary Fund Development Committee and the IMF's Interim Committee agreed at a September 26 meeting in Washington to move forward on a $27 billion multilateral debt-relief program for the world's poorest nations. The plan was announced as part of the Cologne Debt Initiative at the summit of the leaders of Group of Seven members in June (see JEI Report No. 24B, June 25, 1999), but important details regarding financing and burden-sharing were left unspecified. Thus, little progress had been made. However, the White House, widely seen as playing a key role in the process, pledged September 24 to provide nearly $1 billion for the multilateral effort. Other major capitals — with the notable exception of Tokyo — followed with promises of substantial help. With total commitments reaching almost $2.5 billion — an amount that would allow the cancellation of World Bank and IMF loans to begin immediately — Gordon Brown, Great Britain's finance minister and the head of the committee charged with administering the debt-relief program, hailed the meeting as a success.

 

TOKYO CONSIDERS EASING SANCTIONS ON NORTH KOREA by Barbara Wanner

The North Korean powder keg seems to have been defused for the moment, creating opportunities as well as challenges for Japanese diplomacy. Pyongyang announced September 24 that it would not test another ballistic missile while talks are underway with Washington aimed at improving bilateral relations and easing the security environment in Northeast Asia. This was North Korea's first official verbal confirmation that it would make good on an agreement concluded with the United States two weeks earlier in Berlin, Germany. As a result of that accord, President Clinton indicated September 17 that the White House would ease the ban on trade in consumer goods and on air and sea links with North Korea — the first significant gesture by the United States toward the closed, Stalinist country since the end of the Korean War in 1953.

 

HATOYAMA SUCCEEDS KAN AS DPJ CHIEF by Barbara Wanner

Just days after the ruling Liberal Democratic Party reelected Prime Minister Keizo Obuchi to its top post (see JEI Report No. 36B, September 24, 1999), Diet lawmakers and grass-roots members of the Democratic Party of Japan selected DPJ Deputy Secretary General Yukio Hatoyama to be the largest opposition party's new standard-bearer. Mr. Hatoyama beat incumbent DPJ President Naoto Kan, once considered the most popular politician in Japan, by a 182-130 vote in a September 25 runoff election.

 

NOTES

Almost immediately after a major earthquake rocked central Taiwan September 21, Tokyo announced that it would send 108 rescue personnel and provide a $500,000 emergency grant to Taipei. The rescue team, 70 of whom arrived within hours of the disaster, was the largest ever sent overseas; for instance, 39 people were dispatched to Turkey in August to aid earthquake victims there (see JEI Report No. 33B, August 27, 1999). The group consisted of National Police Agency, Fire Defense Agency, Maritime Safety Agency and Japan International Cooperation Agency personnel. In addition, Tokyo announced September 28 that it would send tents, generators and a team of damage assessment specialists to help Taipei deal with the aftermath of the tragedy.

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