Introduction

The evolution and transition of Japan's economic and political institutions during the entire post–World War II period is remarkable for two reasons. First, Japan completed reindustrialization and reestablished prewar economic growth trends in record time. By the 1970s, Japan emerged as the second largest economy in the world. Japan remains a major component of the world economy with one of the world's higher standards of living for its population. Second, following the completion of reindustrialization, Japan's economic and political development exhibited wide fluctuations in performance. After a short but turbulent period of economic distress in the early 1970s, Japan achieved impressive economic, financial, and political stability from 1975 to 1989. The perception of Japan's economic invincibility became widespread during this period. Starting in 1990, however, Japan experienced intense economic, financial, and political distress. The economy and financial system continued to decline or stagnate until 2005. Despite economic recovery by the mid-2000s, Japan continues to face lingering economic and political problems.

The record of Japan's economic performance since the early 1970s and how Japan has adapted to internal and external forces of change have offered a number of important insights into the development process in general. Japan has become a major case study and has influenced economic and political institutions in many countries as they either tried to emulate Japan's economic success or learn from Japan's failures.

The general outline of Japan's postwar development can best be understood by dividing the postwar period into four distinct periods.