Chapter 1. Introduction: The Emergence of Permeable Insulation

Circumstances have changed dramatically between the early 1990s, when the world hailed Japan as one of its economic superpowers, and the early twenty-first century, as the country entered its second decade of economic stagnation. Domestically, Japan's industries have experienced major structural change, the relocation of production abroad, deregulation, and experimental macroeconomic policy such as zero-level interest rates. Internationally, the rise of the yen after 1985 and the increasing competitiveness of industrializing economies in Asia have reduced opportunities for firms producing inside Japan. At the same time, trade liberalization and financial market integration have increased pressure for governments throughout the developed world to comply with international rules in such diverse areas as competition policy, financial regulation, subsidization of private investment, and the adoption of multilateral trade dispute settlement. External and internal pressures have thus combined to force Japan to change in potentially fundamental ways. Interestingly, however, many Japan observers disagree about just how much, and into what, Japan is changing.