Transformation of Japanese Political Economy

In the late 2010s, Japan slowly revived its economy. As of 2020, Japanese companies have become key players in cutting-edge technologies for the digital transformation, occupying dominant market shares in hundreds of critical input products. This chapter how Japan revived its economy in the mid-2010s through a statist coordination model. Throughout the two lost decades, Japan made reform attempts but delayed fundamental changes due to the resistance of vested interests. However, the second Abe administration initiated and implemented fundamental changes based on long-term development plans, with stable power centralized in the Prime Minister’s office. The Abe administration transformed the Japanese economic model of closed circles of insiders into an “open innovation” system. This chapter tracks the politics of change by focusing on how Japanese capitalism changed in the 2010s, and why Japan developed a new statist system rather than an American-style free market system.