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. Last Updated: 07/27/2016

Japan Admits to Aiding Recession




TOKYO -- In a stark admission of failure, the Japanese government has blamed official complacency, bad policy and missteps by bureaucrats and businessmen for the nation's worst recession since World War II.


In its year-end report, the Economic Planning Agency said Sunday that Japanese companies and bureaucrats delayed for years taking the action necessary to manage a recovery after the speculative "bubble" economy of the 1980s collapsed and caused a sharp drop in real estate and stock prices, which left the nation's banks holding billions in bad loans. Instead of facing the problem head on, government and bank officials opted to "leave the embarrassing problem untouched," the report said.


While the substance of the admission echoed the views of the leading industrialized nations and the global financial community, the report was being viewed by analysts here as a welcome dose of reality after years of official pronouncements that recovery was near.


That protracted official denial led to what some observers have termed Japan's lost decade, as the nation watched decades of hard work, high rate of savings and an often brilliant trade strategy undermined. Between 1990 and 1996, Japanese companies and households lost a whopping $7.2 trillion in wealth, or about 1.7 times the nation's 1996 gross domestic product.


"I appreciated the fact that the government is finally admitting its mistakes 10 years after the collapse of the bubble," said Yasunari Ueno, chief economist with Fuji Securities. "I think it's a direct and honest interpretation."


While Sunday's report is a significant step on the road to a national consensus - an essential step if Japan is going to restructure and revitalize its economy - the real question is whether the government will change its behavior.


Other analysts were decidedly less optimistic. The EPA is a relatively minor agency within the bureaucratic maze of Japan's government, and the ruling Liberal Democratic Party continues to dominate national politics and its traditional constituents have a huge stake in the status quo. Much of the government spending designed to stimulate the economy is being poured into troubled firms and has had little noticeable impact to date.


The United States and other major economic powers have been pushing Japan to revitalize its beleaguered economy, the world's second largest, so its problems don't drag down global growth.


According to the EPA report, the $1.7 trillion in capital loss reduced Japan's economic growth rate by some 2 percentage points on average annually between 1991 and 1993 and 0.8 points annually between 1994 to 1996.


The string of bad news continued over the weekend. Japan announced that unemployment in November hit a record 4.4 percent, matching the level in the United States. Business confidence is extremely low as is capital spending and household consumption while Japan remains firmly mired in its worst recession since the end of World War II.