As Japanese companies encountered limits on exports and expanded their foreign investment, slow domestic investment and sluggish domestic demand have undermined economic growth. Beyond macroeconomics We agree that stimulating the economy and restoring the flow of capital would be beneficial. But quick fixes and macroeconomic adjustments alone will not restore economic vitality. Japan has tried these tactics and failed. The Bank of Japan slashed its short-term discount rate to zero.
Nothing seems to work.
That is because what ails Japan goes beyond macroeconomics. Japan's problem is rooted in microeconomics, in how the nation competes industry by industry. If Japanese policy makers and business leaders hope to restore the nation's long-term economic health, they must address the underlying causes of its decline. That means beginning with an accurate reading of what drove Japan's success in the first place. Arriving at this is easier said than done.