In This Review

Japanese Phoenix: The Long Road to Economic Revival
Japanese Phoenix: The Long Road to Economic Revival
By Richard Katz
M. E. Sharpe, 2003, 320 pp.
Japan's Policy Trap: Dollars, Deflation, and the Crisis of Japanese Finance
Japan's Policy Trap: Dollars, Deflation, and the Crisis of Japanese Finance
By Akio Mikuni and R. Taggart Murphy
Brookings Institution Press, 2002, 294 pp.

These two new books on the economic malaise in Japan are informative about the distinctive character of the Japanese economy, but differ in their approach and assessment of Japan's prospects. Katz, a journalist, is explicitly prescriptive and optimistic, although he predicts it will take a decade for true reform of banks, corporations, and the labor market, as well as of the government's approach to all three -- reforms that in his view are necessary for serious resumption of Japanese growth. He is impressed, however, by the significant changes that have taken place during the past decade, such as those in foreign direct investment. Despite having a long way to go, these reforms are pointed in the right direction.

Mikuni and Murphy, both investment analysts, paint a much harsher picture. They see more posturing than real change and a continuation of the bureaucratic war economy established in the late 1930s and preserved after Japan's defeat in World War II, when Tokyo's objective shifted from war mobilization to growth in productive capacity and exports. The result is low profitability and persistent excess capacity. The authors believe it will take a severe and prolonged recession to shake the populace into replacing the ruling elite with individuals committed to fundamental change. The authors are wedded to a dubious thesis that Japan's persistent trade surpluses have been contractionary for the economy, but this detracts only modestly from their many astute and sometimes provocative observations about the Japanese economic and political system.