The Political Economy of the Japanese Financial Big Bang

Abstract

Abstract This book is a case study of structural reform in the Japanese financial sector. It adopts a novel approach, combining rational choice analysis from the field of political science with comparative institutional analysis from the field of economics. Its central hypothesis is that Japanese politics and policymaking have changed due to a combination of policy failures and scandals, as well as the emergence of the possibility of a change in government after 37 years of uninterrupted Liberal Democratic Party (LDP) rule. These factors are likely to affect other policy areas, meaning that decay in the financial policymaking process may lead to changes throughout the political economy. In making this argument, the book attempts to provide a realistic image of post-1995 financial politics by improving on existing behavioral assumptions of actors. It demonstrates that the Big Bang can be best understood as an outcome of the strategic interaction of state actors. More specifically, the Big Bang is the product of interaction between the LDP and Ministry of Finance, each pursuing organizational survival through cooperation, competition, and confrontation. The book is divided into three parts. Part I discusses the conceptual tools and background information in preparation for later analysis. Part II provides an empirical analysis of financial politics. Part III attempts to make sense of the developments analyzed in Part II by returning to the analytical frameworks developed in Part I.

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