CandleFocus Glossary Editor
Japan Inc. refers to the economic system and corporate culture that saw prominence in Japan from the 1970s until the 1990s. The original characterisation applied to industrial conglomerates, such as Mitsubishi and Sony, known as ‘zaibatsu’, because of the broad scope of their investments, the interlocking group of companies, and their intimate ties with the government.
During this period, the government and central bank of Japan collaborated closely to promote economic growth and development by implementing several measures. These included loosening foreign trade and international finance regulation, allowing for the growth of the banking sector, and creating a diverse industrial base. This was further enabled through the Comprehensive Economic and Industrial Plan, which prioritised the development of certain industries by allocating resources to them and encouraging more open loan practices. This pushed other industries, such as banking and trade, to become more efficient and to adopt better financial practices.
Moreover, Japan Inc. was characterised by a strong focus on keiretsu structure, which allowed companies to grow and develop without risking the capital. Keiretsu provided these companies with a competitive edge by not only allocating resources towards their own investments, but also creating a tight network of partner companies that shared contracts, secured financing, and created a safety net against vulnerability and risks.
The Japan Inc. model worked for some time, with Japan’s GNP growing between 4-6% annually. Concerns, however, began to rise with rising government debt, domestic overcapacity in certain industries, and foreign competition emerging. As a result, Japan saw its ‘Lost Decade’ during the 1990s characterised by declining fundamentals and sluggish economic growth, leading to a period of deflation.
Japan Inc. continues to this day to be used as an example of a vertically integrated economic model, and both its successes and failures are used to inform strategies that other nations have adopted.
During this period, the government and central bank of Japan collaborated closely to promote economic growth and development by implementing several measures. These included loosening foreign trade and international finance regulation, allowing for the growth of the banking sector, and creating a diverse industrial base. This was further enabled through the Comprehensive Economic and Industrial Plan, which prioritised the development of certain industries by allocating resources to them and encouraging more open loan practices. This pushed other industries, such as banking and trade, to become more efficient and to adopt better financial practices.
Moreover, Japan Inc. was characterised by a strong focus on keiretsu structure, which allowed companies to grow and develop without risking the capital. Keiretsu provided these companies with a competitive edge by not only allocating resources towards their own investments, but also creating a tight network of partner companies that shared contracts, secured financing, and created a safety net against vulnerability and risks.
The Japan Inc. model worked for some time, with Japan’s GNP growing between 4-6% annually. Concerns, however, began to rise with rising government debt, domestic overcapacity in certain industries, and foreign competition emerging. As a result, Japan saw its ‘Lost Decade’ during the 1990s characterised by declining fundamentals and sluggish economic growth, leading to a period of deflation.
Japan Inc. continues to this day to be used as an example of a vertically integrated economic model, and both its successes and failures are used to inform strategies that other nations have adopted.