Japan's Response to Crisis and Change in the World Economy

Michèle Schmiegelow

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9781138648166
• eBook ISBN: 9781317235101
• Edition: 1
• Topic: Economía
• Subtopic: Condiciones económicas

Originally published in 1986, after a period of global changes and financial crisis in the majority of industrialised countries, this book explores how Japan's economy seemed to maintain its success. This study provides an overview of the Japanese case and the main schools of thought that arose from it by dealing with export-related issues such as reforms in foreign exchange and trade control laws and the internationalisation of Japan's financial markets as well as more domestic issues such as employment and wages. This title will be of interest to students of Asian Studies and Economics.

1

THE REFORM OF JAPAN’S FOREIGN EXCHANGE AND FOREIGN TRADE CONTROL LAW: A CASE OF QUALITATIVE ECONOMIC POLICY

Michèle Schmiegelow

Introduction

Japan has been the object of recurrent complaints by its partners on the “closeness” or “narrowness” of its domestic commodity or financial markets. Political pressure has been brought to bear on the Japanese government time and again to “liberalize,” that is, to open its domestic market to foreign goods, to simplify regulations, to speed up import procedures, and to deregulate its financial markets. What I propose to do in this chapter is to show that while these criticisms continue, an important reversal of trends has occurred. Whereas in past decades it was relatively easy to describe Japan’s foreign trade and foreign exchange control regime in terms of its deviations from the free-trade model,¹ an altogether different variation has been developing in recent years. Indeed, whereas in America and Europe the spreading influence of such liberal general equilibrium theories as monetarism and supply-side economics on domestic macroeconomic policies curiously coincides with an accelerating erosion of faith in the international free-trade doctrine and an increased readiness for diplomatic conflict with protectionist or other means,² in Japan the trend in external economic relations is clearly from protectionism toward liberalization.

In 1980, a regime of external economic relations was adopted that is among the most liberal of the OECD countries.³ Just as Kazushi Ohkawa and Henry Rosovsky anticipated ten years ago,⁴ having had to harmonize the continuing above-average growth implied by the process of reaching industrial maturity and beyond⁵ with developments in the global economy, “Asia’s new giant” has come to assume an unaccustomed role as a solitary champion of free trade. One evidence illustrating this point is the pattern of Japan being requested to make concessions to its industrial trading partners and Third World countries that amount more often to restraints on trade or capital movements (orderly marketing cartels, managed import promotion schemes, measures in support of the yen) than to the removal of restraints. Shortly after Japan legally liberalized capital movements subsequent to American and European pressures, Fred Bergsten and Peter Kenen, among others, advocated cancelling part of the new regime.⁶ Indeed, although long-term capital outflows from Japan have been recognized as beneficial not only in Europe but also in the Third World, destination of the bulk of them,⁷ Bergsten has noted that since 1981 they have contributed to the misalignment between the U.S. dollar and the yen.⁸ Although long-term capital inflows exceeded outflows in 1980, the currently prevailing view is to anticipate a structural excess of outflows causing an undervaluation of the yen.⁹

In comparing the new regime to the old one and in trying to qualify the impact of the former, it is useful to stress again two apparent paradoxes. First, how could Japan become one of the world’s leading trading nations long before the 1980 reform, that is, while still under its postwar trade and foreign exchange control regime based on the principle of interdiction of external transactions? Second, why was it that capital movements lagged so obviously behind the rapid development of Japan’s foreign trade, or, in other words, was the principle of interdiction so much more effective in the capital market than in the field of commodity trade?¹⁰

The first anomaly was the result of the legal system and of the way in which it has been implemented. Faced with war destruction, the necessity of rapid recovery, and an extreme shortage of foreign exchange reserves, Japan, like most European industrialized countries after World War II, felt that regulation of external transactions–imports, exports, and foreign exchange–was imperative.¹¹ The basic policy instrument for these purposes was Foreign Exchange and Foreign Trade Control Law no.228 of 1949 (hereafter referred to as the Foreign Exchange Law). Like other countries in the same situation, Japan adopted, through this law, the principle of interdiction of any external economic transaction not explicitly authorized by law, decree, or administrative act. Only at the end of the 1950s did Japan begin to diverge from most industrialized countries. While most countries in Europe reacted to the strengthening of their foreign exchange reserves by deciding in 1958 to reestablish currency convertibility or, like Germany in 1961, to replace the principle of interdiction with the principle of freedom of external economic transactions, Japan maintained the postwar law until 1980. What is remarkable is that in spite of that system, Japan has been able to challenge Germany for second place in world trade.

The 1980 reform has given Japan a law whose concept is no less liberal than that of the West German law on external economic transactions (Aussenwirtschaftsgesetz). The principle of interdiction has been replaced by a general provision of freedom of any external economic transaction unless otherwise stipulated by the competent authorities.¹² A closer scrutiny of the history of the reform, however, reveals that the new law, as far as trade relations are concerned, merely puts in a systemic order, as it were, a sectoral liberalization in the field of external trade that occurred in 1962¹³ and amounted to lifting in practical terms the principle of interdiction for imports and exports of goods. It appears that in pragmatic Japan, restrictive legal principles do not exclude practical liberalization.

The same phenomenon explains certain aspects of the second anomaly, namely, the time-lag between the develo...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Copyright
• Table of Contents
• Introduction: Policies, Structures, and Change in Japan’s Economy
• Chapter 1 : The Reform of Japan’s Foreign Exchange and Foreign Trade Control Law: A Case of Qualitative Economic Policy
• Chapter 2 : Japan’s Exchange Rate Policy: Policy Targets, Nonpolicy Variables, and Discretionary Adjustment
• Chapter 3 : The Foreign Exchange Market in Japan
• Chapter 4 : The Internationalization of Japan’s Financial Markets
• Chapter 5 : Japanese Foreign Direct Investment
• Chapter 6 : Japanese Foreign Direct Investment in Western Europe
• Chapter 7 : The External Safeguard of Domestic Monetary and Fiscal Policies
• Chapter 8 : The Position of Banks and Securities Companies in the Japanese Financial Market and Its Effect on International Capital Flows
• Chapter 10 : Externalization of Domestic Macroeconomic Performance: Export-Led Growth or Growth-Led Export?
• Chapter 11 : Employment, Wages, and Export Competitiveness
• Chapter 12 : Industrial Policy in Japan: Interactions Between Policies and Dualist Structure
• Chapter 13 : The Distribution System: Its Social Function and Import Impeding Effects
• Chapter 14 : Legal and Institutional Dynamics in Japan’s Cartel Policy
• Conclusion : Michèle Schmiegelow
• Notes on the Contributors