for the success of the Japanese economy since World War II, they have certainly been strong contributing factors.
In 1993, the Japanese economy, the world's second largest at more than $4 trillion, posted its lowest calendar year GDP growth since 1974, negative 0.2 percent for the year. Output declined slightly in 1994, the first time since the early 1970s (Cahn 1).
Japan is now recovering from the second longest economic slowdown in Japan's postwar history. Prior to the slowdown that began in 1991 and lasted through 1993, Japan had never experienced two consecutive years of less than 3 percent real growth. The surge in asset prices and high rates of capital investment and hiring in the late 1980's gave way, by 1991, to sharply slower growth, corporate restructuring, and balance sheet adjustment by businesses and consumers. Very low levels of utilization for existing capacity suggest that business investment will be a lagging factor in the current recovery (Cahn 1).
Japan's 1993 external accounts posted record global trade and current account surpluses of $141 billion and $131 billion, respectively. Sluggish domestic demand slowed growth in import volume, while exports, especially to other Asian markets, continued to grow steadily. Yen appreciation helped swell dollar-denominated surpluses in the short run through the so-called "J-curve effect." Over the longer run, yen appreciation since 1990, plus eventual recovery in domestic demand, is widely expected to contribute some downward adjustment in Japan's external imbalance (Holman A4).
In recent years, the Japanese government has used public spending to counter the overall negative contribution of private demand to domestic demand growth. Four fiscal stimulus packages between August 1992 and February 1994 injected a substantial amount of public works spending into the economy, some of which is still being disbursed in 1994 ("Background Notes" 9).
In 1994 the Diet...