On the Financial Repression in Japan During the High Growth Period (1953-73)

Abstract

Japanese financial policies during the so called High Growth Period (HGP-roughly 1953-1973) stand at sharp contrast with the presumptions of the financial liberalization literature. Against the Japanese example, McKinnon (1991) and Horiuchi (1984) have argued, based on relatively high interest rates in Japan during this period compared to developed economies, that the Japanese financial market was not repressed. In this paper, Japanese financial policies during the HGP are examined to show the heavy and distortionary but purposeful government intervention in the financial markets. Moreover evidence is provided against those of McKinnon and Horiuchi to show that major interest rates have been repressed during the HGP. Finally, the reasons that forced the Japanese government to implement financial liberalization after 1973 are discussed. These reasons do not include considerations related to growth and the growth performance have declined after 1973.Japanese financial policies