Whatever the merits of such proposals for longer term

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Unformatted text preview: Indeed, in this interpretation, such changes would boost private-sector confidence. Whatever the merits of such proposals for longer-term growth, discussed at greater length in section IV below, it is arguable whether deregulation would have much of an effect in stimulating private spending in today’s circumstances. Past and present deregulatory efforts, aimed at making financial markets more competitive, could, if anything, have the opposite impact, at least in the short run. Thus, interest-rate deregulation, for instance, almost certainly worsened the already poor returns of the banking sector in the late 1980s. Similarly, fears that the ‘life-time employment’ practices of large firms are under threat, or that ownership structures in the corporate sector might change, may well lead to households stepping up their precautionary savings, while corporations postpone investment and strengthen their balance sheets to ward off hostile interests. (iii) A Savings–Investment Imbalance A third view of Japan’s predicament borrows from both the interpretations put forward above. It accepts that the economy suffered because of adverse shocks, but then...
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