Japan’s Financial Problems

Edward J. Lincoln

EJL

Edward J. Lincoln

Discussants: Benjamin M. Friedman

BMF

Benjamin M. Friedman Harvard University

THE JAPANESE ECONOMY has faced difficult times in the 1990s, and the overall economic situation has grown worse in 1998. One core aspect has been the emergence of an enormous amount of bad debt, now officially estimated to be roughly 25 percent of GDP. Resolution of this problem has proceeded slowly and, as of the summer of 1998, doubts remain concerning the ability or willingness of the Japanese government to deal adequately with it. This paper considers how the problem emerged, evaluates existing policies, and offers some thoughts on probable outcomes.