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2006 OECD Economic Surveys: Japan 2006

image of OECD Economic Surveys: Japan 2006

This 2006 edition of OECD's periodic survey of Japan's economy opens with an assessment of recent economic performance and the economic outlook. It then moves on to analyse key challenges faced by Japan including ending deflation an sustaining soundness in the banking sector, fiscal consolidation, income inquality and social spending, upgrading the innovation system, and improving the environment for inflow of direct investment and workers.

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Assessment and Recommendations

Japan has finally emerged from an extended period of economic stagnation following the collapse of the asset price bubble in the early 1990s. Factors that had weighed on activity – such as falling asset prices and declining bank lending – have been slowed or reversed, while corporate restructuring to reduce employment, capacity and debt has largely run its course. This has allowed the initial export-led upturn in 2002 to develop since early 2005 into a full-fledged expansion driven by domestic demand. The strength and duration of this upturn pushed some measures of inflation into positive territory in the first quarter of 2006 and business and household confidence have now reached their highest levels since the early 1990s. The government’s reform measures have played an important role in laying the foundation for sustained and robust growth, in particular by strengthening the banking system. The positive trends in business investment and private consumption are expected to continue, making the current expansion the longest in Japan’s post-war history, with output growing between 2 and 3% in 2006 and 2007...

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