Two Lost Decades? Why Japan’s Economy Is Still Stumbling and How the U.S. Can Stay Upright

by Derek Scissors, Ph.D. and J.D. Foster, Ph.D.


A weak Japanese economy is again making Americans nervous. For the fourth quarter of 2008, Japan reported a painful 12.7 percent annualized drop in GDP—a low point in a disappointing economic performance that stretches back to the early 1990s.[1]

The extent of Japanese stagnation has been understated—much more than a decade has been and is still being lost. The relevance of this stagnation to America's current economic crisis therefore goes beyond how the Japanese handled their financial crisis almost 20 years ago to a continued failure to revitalize the Japanese economy in sustainable fashion. This traces back to Japan's failure to move its economy away from structural reliance on exports and trade surpluses. The U.S. has the mirror problem: a reliance on imports, including imported savings. Read more.