he United States and Japan are the two largest national economies in the world. The United States is the world's largest deficit and debtor country. Japan is the world's largest surplus and creditor country. The exchange rate between the dollar and yen has fluctuated violently, strengthening from 360:1 as recently as 1971 to 80:1 in early 1995 before weakening again to about 130:1 at present. Trade frictions over the past thirty years, leading to such extreme measures as America's import surcharge in 1971 and Japan's acceptance of "voluntary export restraints" in a wide range of industries in the 1980s, have threatened the stability of the global trading system. Hence the course of economic relations between the United States and Japan plays a critical role in the world economy as well as a central role in overall relations between the two countries.
The economic positions of Japan and the United States have reversed dramatically over the past decade. In the late 1980s, most Japanese and many Americans believed that Japan was on its way to becoming the dominant economy in the world - if it had not already achieved that position. Most Americans and many Japanese believed there had been an fundamental deterioration in the competitive position of the United States. Japanese investors were making huge investments at the United States (at what often turned out to be vastly inflated prices). American companies were emulating key Japanese management practices as they struggled to restore their own strength.
All this has changed over the past decade. The United States is now in its eighth consecutive year ofconomic expansion. America has created over fifty million new jobs since 1970, twelve million alone since 1993. Unemployment is at its lowest level in almost thirty years. Prices are more stable than at any time since the first oil shock in 1973. Indeed, except for a short recession in 1990-91, the United States has grown steadily since 1982. The "American model" looks increasingly successful and is itself being widely emulated around the world.
By contrast, Japan has been the "sick man" of both the industrial countries and East Asia since the early 1990s. This performance represents a strange paradox. Until the outbreak of the recent Asian crisis, Japan had been living in the fastest growing region of the world economy. It has implemented fiscal stimulus programs, even prior to the latest initiatives, that cumulated to more than $600 billion in recent years. Interest rates have been virtually zero for some time. The trade surplus is the highest in the world and has again been rising significantly.
Yet there has been virtually no growth in Japan for more than six years. Something fundamental seems to be wrong. Deregulation and liberalization are clearly needed in many sectors, especially as other countries move rapidly to open their own economies. Most important is the weakness of the financial system; recovery seems highly unlikely without fundamental reform in that sector.
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Explanation:
he United States and Japan are the two largest national economies in the world. The United States is the world's largest deficit and debtor country. Japan is the world's largest surplus and creditor country. The exchange rate between the dollar and yen has fluctuated violently, strengthening from 360:1 as recently as 1971 to 80:1 in early 1995 before weakening again to about 130:1 at present. Trade frictions over the past thirty years, leading to such extreme measures as America's import surcharge in 1971 and Japan's acceptance of "voluntary export restraints" in a wide range of industries in the 1980s, have threatened the stability of the global trading system. Hence the course of economic relations between the United States and Japan plays a critical role in the world economy as well as a central role in overall relations between the two countries.
The economic positions of Japan and the United States have reversed dramatically over the past decade. In the late 1980s, most Japanese and many Americans believed that Japan was on its way to becoming the dominant economy in the world - if it had not already achieved that position. Most Americans and many Japanese believed there had been an fundamental deterioration in the competitive position of the United States. Japanese investors were making huge investments at the United States (at what often turned out to be vastly inflated prices). American companies were emulating key Japanese management practices as they struggled to restore their own strength.
All this has changed over the past decade. The United States is now in its eighth consecutive year ofconomic expansion. America has created over fifty million new jobs since 1970, twelve million alone since 1993. Unemployment is at its lowest level in almost thirty years. Prices are more stable than at any time since the first oil shock in 1973. Indeed, except for a short recession in 1990-91, the United States has grown steadily since 1982. The "American model" looks increasingly successful and is itself being widely emulated around the world.
By contrast, Japan has been the "sick man" of both the industrial countries and East Asia since the early 1990s. This performance represents a strange paradox. Until the outbreak of the recent Asian crisis, Japan had been living in the fastest growing region of the world economy. It has implemented fiscal stimulus programs, even prior to the latest initiatives, that cumulated to more than $600 billion in recent years. Interest rates have been virtually zero for some time. The trade surplus is the highest in the world and has again been rising significantly.
Yet there has been virtually no growth in Japan for more than six years. Something fundamental seems to be wrong. Deregulation and liberalization are clearly needed in many sectors, especially as other countries move rapidly to open their own economies. Most important is the weakness of the financial system; recovery seems highly unlikely without fundamental reform in that sector.