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Japan is a comfortable, safe, relatively high income, advanced democratic nation with an educated, skilled, well-motivated labor force, private sector high savings rate, the rule of law, and well-developed markets. The unemployment rate is very low, modest GDP growth per capita continues, and prices are flat with CPI increases still significantly below the 2 percent target. Japan is fundamentally stable socially, politically, and economically, with an ethnically homogeneous population of 126 million. If this sounds familiar, it is because my last two annual essays have begun similarly, and future ones are likely to as well. This speaks well of the steadiness and persistence of contemporary Japan.

Japan again seems to be breaking out of the doldrums it has been in since the early 1990s. In this paper, I begin by assessing the past year ending in summer 2015. I first consider the economic situation; Japanese trade policy, specifically its involvement in the TPP and AIIB; and the latest political developments, particularly the results of Abe's snap election of December 2014. I then examine the international and regional financial context, with China and India leading regional economic growth. Following this overview, I delve into the goals and progress of Abenomics: ending deflation and achieving 2 percent inflation; achieving 2 percent growth by increasing productivity; dealing with Japan's huge debt with flexible fiscal policy; and addressing Japan's low birth rate by increasing fertility and promoting women's rights. I focus especially on the third arrow of Abenomics – achieving sustained growth – by making difficult structural changes, notably opening up markets in historically-protected sectors such as agriculture and healthcare, as well as more modest initiatives in corporate management and governance, promoting information technology, opening Japan to 60,000 foreign skilled workers a year, and strengthening the university system by creating distinguished graduate schools and special research institutions. I then consider further specifics about corporate governance, which Abe has made a focus of his efforts. Finally, I examine the vast changes occurring in Japan's energy sector, which hold much promise with the development of renewable technologies and possible restarting of its nuclear plants – idled since the Great East Japan Earthquake in 2011 – but which also faces many challenges, considering Japan's dearth of natural resources and subsequent vulnerability to the vagaries of global markets.

Hiroshima Rapid Transit (HRT) provides mass transit service on an automated guideway (AGT) system in Hiroshima, Japan. The company is a case study of a public-private (third sector) firm that provides a service with substantial external benefits. HRT also has an extraordinarily weak financial base, with a negative net worth and huge financial debts. Nonetheless, it has begun to make profits, and has been an ultimately successful undertaking by Hiroshima City, supported by the Development Bank of Japan (DBJ). This study suggests the ongoing usefulness of government banks such as DBJ, despite bad financials.

The 2012 election gave Japan's LDP control of both houses of the Diet, with Shinzo Abe as the new leader promising to provide decisive and energetic leadership out of the malaise of the past two decades. The vision incorporated in his economic policy program, Abenomics, is to end the two decades of economic stagnation and resignation, revitalize Japanese enterprise, and halt population decline; these go hand‐in‐hand with his political/security desires to restore Japanese self‐confidence and national pride, and make Japan an internationally‐ respected country. The three arrows of Abenomics--fiscal policy (the government's purview), monetary policy (Bank of Japan), and structural reform (private sector and government)--have had some initial success, but implementation will take years. Monetary policy has successfully halted deflation, but achieving and then sustaining an annual 2 percent increase in consumer prices will be a major challenge. Fiscal policy's major challenge persists: achieving sufficient private consumption and investment demand growth so that fiscal consolidation can be implemented. Structural reform to achieve growth requires a wide range of policies, so it is a thousand darts, not a single arrow. Abe's immediate challenge is how rapidly and how well the economy rebounds from the consumption tax increase, as he faces major policy decisions by year‐end or early next year. Perhaps the most important are whether to pursue the 2 percentage point consumption tax increase scheduled for October 2015, the planned cut in the corporate income tax rate, and whether an agreement can be reached in the Trans‐Pacific Partnership (TPP) free trade agreement negotiations.

As Japan enters an era of political stability under Prime Minister Shinzo Abe, Japan is poised to recover from the past two decades of mediocre performance toward good, sustained economic growth. Abe, a strong leader who will not be replaced until at least 2016, is giving priority to a much‐touted economic program termed Abenomics, comprising three "arrows": ending deflation and achieving price stability, defined as a 2 percent annual increase in the CPI; achieving stable, long‐run, full employment GDP growth over the next decade; and fiscal consolidation bringing an end to enormous government budget deficits and debt. This paper explores these programs, focusing on macroeconomic demand management and the growth strategy. I briefly consider the Trans‐Pacific Partnership, and changes in the agricultural, electric power, corporate, and international trade sectors, and identify the key challenges to implementing good economic growth. Despite these challenges, Abe's strong political statements, public support, and the power of the LDP leadership provide hope for long‐awaited change in Japan.

This paper addresses Japan's economy, its new economic policy package, and the new term – Abenomics – that is used to describe the three pillars, or "arrows," of the Abe government's focus on the Japanese economy and on economic policy. The term Abenomics is an example of brilliant branding. At the same time it is risky, since it implies Prime Minister Abe's success or failure will depend on the success or failure of Abenomics. This paper makes three major points. First, it is far too early to tell whether Abenomics will be successful – in ending deflation, bringing about price stability and getting the economy onto a stable, full employment growth path. Second, perhaps the most important change is the shift in people's feelings about Japan's future, from resignation to optimistic hope. However it is not at all clear that this new mindset will become deeply engrained and sustained. Third, we should distinguish between Abe as Prime Minister and Abenomics.

The purpose of this paper is to provide an overview of the current state of the Japanese economy, and to consider some of the major challenges it faces during these tumultuous political times. It begins with an economic policy proposal focused on Japan's muddling recovery amidst the difficult political climate presently inhibiting growth. I then discuss several domestic and global issues likely to impact recovery of the Japanese economy. Regarding macroeconomic policy, Japan should pursue growth—focusing on unemployment, overcoming a sluggish recovery, and generating revenues—until stable full employment is achieved, and then implement effective fiscal consolidation with a high priority on tax and other reforms, deregulation, and liberalization. This policy should be implemented by a strong but temporary macroeconomic package of further monetary easing and additional fiscal stimulus until deflation has ended and good growth achieved, then followed by gradual but significant tax increases as a share of GDP and an end to monetary easing. Japan currently faces several challenges to economic growth. Although government infrastructure investments in Tohoku and the quick repair of supply chain ruptures led to impressive 5.5 percent growth in the first quarter of 2012, that growth slowed sharply in the second quarter to an estimated 0.7 percent rate. Furthermore, within the Japanese government, petty political gamesmanship is peaking, economic policymaking is gridlocked, and the government faces numerous structural issues including inadequate domestic demand, fiscal consolidation, deflation, and weak labor markets. The DPJ will surely lose the upcoming election and control of the government after three years in office. In addition to Japan's still-unresolved long-run structural issues, the new government will also have to address energy policy, the role of nuclear power, trade liberalization, and financial market reforms, along with growth and the ongoing recovery effort in Tohoku. The Fukushima Daiichi plant disaster has had significant economic, political, and societal effects. Energizing an increasingly large antinuclear movement, the disaster has forced the government to examine the fate of existing nuclear plants, decide how far and how quickly nuclear power downsizing should proceed, and aggressively promote conservation and the development of renewable resources. Japan must also now confront two models for Asia-Pacific trade liberalization: the comprehensive Trans-Pacific Partnership (TPP) of 11 nations, led by the United States; and an "Asian track," exemplified by Japan's trilateral trade negotiations with China and Korea. Though it is in Japan's best interest to proceed vigorously on the TPP track, the Japanese government will not join negotiations until next spring at the earliest, and its inability to engage in major agricultural reform soon could risk its ability to shape the rules of the TPP. Finally, the Japanese government must also pursue financial reforms after high-profile scandals revealing widespread insider trading, and after several attempts by foreign banks to manipulate the Tokyo interbank offer rate (Tibor). I am not particularly optimistic about the Japanese economy for the next several years; I am concerned about continuing economic policy gridlock and inaction. Despite my best hopes, I anticipate that the new government will only muddle along. Regardless, because of its unique position in the global economy, I still believe that ignoring Japan is a big mistake. It will continue as one of the world's five largest economies for the foreseeable future, a technological leader, and a major global economic partner and competitor. We can also learn from how Japan deals with a range of problems common to most advanced economies. In the long run, I continue tobe optimistic about Japan. As its history demonstrates, it has a record of being a strong, highly motivated, effective society, demonstrably capable of responding well to and overcoming adversity.

The purpose of this paper is to provide a broad overview of the strengths of the Japanese economy and to consider some of its major problems. First, however, the paper begins with two fundamental economic policy proposals. It ends with a discussion of some effects of the March 11 earthquake triple disaster. First, Japan should implement a major macroeconomic stimulus package of more aggressive monetary policy, taking on a lot more credit risk and further fiscal stimulus, and then implement comprehensive tax increases and reforms. Second, it should institute a major program of comprehensive deregulation of the economy. Predictions about Japan's economic decline are off-base. Japan is a major, high income, technologically advanced, sophisticated economy and society, and will be among the top five economies for at least the next two to three decades. Some tend to believe that China's rise means Japan's decline, but though this may be true in relative terms, economic power is a positive-sum game; it is better to do business with rich, growing economies than poor, stagnant ones. Japan has three important strengths: its people and cohesive society; its high level of technology; and its very large stock of real capital. Of course Japan has problems as well. One is Japan's mediocre economic performance for the past two decades. It has been very difficult for Japan to shift from a model of investment-led growth to consumption-led growth; this has had a number of interrelated adverse effects, including a sustained deflation of prices of goods and services and a depressed job market (though the unemployment rate is far lower than in the U.S. and Europe). A second problem is the very low productivity and lack of international competitiveness of agriculture, and in forestry and fishing, due to small amounts of arable land, in a high wage, high labor cost economy. Agricultural interests are very well organized and effective in protecting their entitlements; this is why Japan has not been able to negotiate any serious free trade agreements, and why TPP poses such a difficult political problem. Third, Japan's corporate governance system is weak, principally because of the dearth of independent directors. The management continues to give higher priority to the interests of its regular employees than its shareholders, often cannot effectively manage their foreign operations, and perpetuates their management system for its own self-preservation. Finally, I consider the effects of the March 11, 2011 triple disaster in Tohoku. This was a regional, not nationwide, disaster. It showed the impressive response of the Japanese people, as well as the strength of Japanese supply chain systems. The outpouring of support from America and around the world has demonstrated how much goodwill "" soft power "" Japan has built up over the years. However, it brings into serious question Japan's pre-earthquake energy policy of heavy reliance on nuclear energy. At this point, it is politically difficult to reopen these plants soon, but if they're not, there will be electricity shortages this winter, and again next summer. So either short- or long-term, Japan will probably have to either revert to more coal energy, which will increase greenhouse gas emissions as well as health-related diseases, or more sources of still expensive renewable energy.

This paper discusses Japan's deep recession from summer 2008 to spring 2009 and the recovery as of fall 2009, considers near-term and longer-term prospects, and briefly addresses Japan's international economic relations. The August 2009 Diet Lower House election victory by the opposition Democratic Party of Japan (DPJ) heralds a major change in Japanese politics, ending long"term control by the Liberal Democratic Party. While the DPJ proposed significant changes in economic policy in its election campaign, it remains too early to determine just what its economic policies will be in Japan. Japan has a major problem, not just cyclically but structurally: a combination of inadequate domestic demand and its unbalanced composition -- notably a high share of business investment in only slowly growing GDP and a low share of consumption yet little household saving. A further major concern is the persistence of mild deflation for the foreseeable future. Both suggest the need for significant further macroeconomic stimulus to jump-start economic recovery in order to generate full employment sustained growth.

This paper considers a range of issues affecting Japan's contemporary economic well-being. Japan has continued toward sustained, full-employment growth, though its path has been idiosyncratic and its pace has been erratic. GDP growth in 2006 was a respectable 2.2 percent, driven by business fixed investment and exports. Private consumption has failed to support demand, which reflects very low wage increases. The combination of economic expansion with mild deflation is the big idiosyncrasy of Japan's economic performance. The decoupling of growth and deflation is explained primarily by the ongoing structural transformation of the labor market. Slow growth in wage income and consumption imply that inflationary pressures will not emerge in the near future, despite economic growth. The likelihood that wage stagnation will persist and consumption's share of GDP will also continue to decline presents inadequate aggregate demand as a major constraint on growth and Japan's most important macroeconomic policy issue. Corporate performance continues to improve, but faces new restructuring challenges that involve divestitures, mergers, and acquisitions. Activist shareholders are playing an increasingly important yet controversial role in evolving Japanese companies. Export growth, propelled by a weak yen, has continued to be a major source of aggregate demand and corporate profits. Recent appreciation of the yen, as a result of the global credit crunch and financial turbulence, is a major concern only if it persists. Japan's trade has shifted away from the United States to Asia. East Asian economic cooperation is increasingly promoted, though the main impetus is political, not economic. Obstacles are currently too great for significant bilateral or regional PTAs, which is not a bad thing. I remain fundamentally optimistic about Japan's ability to solve its basic problems.

This paper introduces recent fundamental changes in Japan's political economy, and analyzes how these have affected the country's industrial architecture in terms of business group organization. Whereas previously, long-term, stable relations with other firms, banks and shareholders afforded great advantage to many companies, the new dynamic environment has led more and more banks and companies to turn away from stable "insurance" arrangements. The paper shows that a revision of corporate law towards more managerial flexibility paired with broader powers by shareholders matches this shift towards greater transparency, accountability, and competitive strategic positioning. Therefore, processes of corporate governance are also greatly altered. Our perceived wisdom of Japanese business organization needs to be updated.

This paper reviews Japan's recent economic performance through the summer of 2004. It notes the strong cyclical recovery and its slowdown. I note several problems about the economic data, particularly about the GDP deflation's bias which results in an overestimate of real GDP growth by about 1 percent point. I consider inadequate aggregate demand; persisting deflation and monetary policy; unemployment and underemployment, adversely affecting the young particularly; ongoing financial system reform; government economic policy; longer run growth and economic transformation; and changes in corporate governance. The key issue is whether the generally positive economic ending has finally put Japan onto the path of self-sustained growth. I am cautiously skeptical; it depends whether growth in 2005 is close to 3 percent or to 1 percent.

This paper reviews Japan's recent economic performance through the first half of 2005, as well as the economic implications of Koizumi's snap election. After a disappointing final 3 quarters in 2004, first quarter growth in 2005 was a strong 5.8 percent annual rate, followed by a reassuring second quarter at 3.3 percent annual rate. Slow gradual improvements across the economy can be expected to continue, but achieving sustained full employment economic growth depends on whether growth rates over the next five years are closer to 3 percent or 1 percent. The most significant improvement over the past year has been in the labor market. Unemployment dropped to 4.4 percent in July, from its 5.5 percent January 2003 peak, while total employment and employee compensation figures are on the rise. The systemic problem of bank excessive nonperforming loans has been solved. Corporate restructuring proceeds, albeit in the light of new worries over hostile takeover bids. Despite improvement in virtually all Japan's economic indicators, most of the major concerns fundamentally persist. Aggregate demand remains inadequate; both deflation and labor market slack continue; household income growth is modest; capital is misallocated; and business borrowing continues to decrease. Koizumi's potent political victory will ensure the necessary postal privatization, although the details of implementation remain unclear. He has yet to define how he will use his public mandate to make other economic reforms, but general optimism prevails. The most difficult fiscal challenge will be to successfully navigate tax increases without inhibiting economic growth. The Bank of Japan faces two challenges: reducing the quantitative target, and proceeding to exit the current ZIRP monetary policy. Internationally, Japan must forge productive political relationships with its regional economic partners, specifically China, and continue to work towards greater East Asian economic corporation.

Like the United States, managers of Japan's large companies since the early 1950s have had great autonomy because shareholding is dispersed. However, most Japanese companies have a significant portion of their shares stably held by other friendly financial institutions and businesses, a significant component of the integrated, synergistic "postwar economic system" embodied in the permanent employment system of industrial relations, the main bank system, and management independence. Employees rather than shareholders are the main potential constraint, so managers have given strong priority to employee interests. Japan's mediocre economic performance since 1991, and a range of publicized corporate scandals, are now undermining this system. Government policies and public pressure have improved corporate disclosure and transparency, and have made corporate governance through capital markets feasible. While managers in the future will place greater weight on shareholder interests, only a few companies are likely to adopt the Anglo-American corporate governance model. More likely is the gradual development of a hybrid approach in which management retains considerable autonomy and employee interests remain important.