Reform of the financial structure began in 1996 when the economy showed signs of picking up, but the problem of bad credit, another negative legacy of the bubble era, exploded and the economy again fell into recession. Since the collapse of the financial system causes the economic system to stop functioning, naturally every measure was taken to prevent this. It took a year, however, to deal with the problem of bad credit, and this added to the depression. As there was little prospect of recovery, economic measures worth 43 trillion yen, or 10% of GDP, were implemented in 1998.
The government's economic measures are essentially only a means of alleviating the shock, and the economy will not improve because of them. If the economy could recover as a result of economic measures taken by the government, the Soviet Union would not have collapsed. The Soviet Union collapsed because it squandered its economic resources on building missiles and nuclear weapons, and Japan is squandering its economic resources on wasteful projects that go by the name of public investment. Furthermore, it is caught in the dilemma of watching the economy deteriorate further if it does not spend recklessly.
The massive accumulation of government debt makes future policy implementation difficult
Implementation of present economic policies is made possible mainly by the "zero interest" policy However, the booming U.S. economy results in the introduction of a hike in interest rates, and Japan's shrinking black-ink current balance is finally affecting the exchange rate, and thus Japan too may not be able to avoid raising its interest rates.
A one percent premium is already attached to government guaranteed bonds on international financial markets, and problems arising from the collapse of national bond prices are no longer merely issues for thing of the future.
