Managing macroeconomic adjustments: Japanese fiscal policy in the era of global capitalism

This dissertation attempts to explain the varying outcomes of Japanese fiscal policymaking in 1977-1979 and 1985-1987 when Japan accumulated huge trade surpluses with the United States. Its central argument is that the prime minister played a crucial role in determining the power balance between two competing camps: the austerity-oriented Ministry of Finance (MOF) and the ruling Liberal Democratic Party (LDP) that favored fiscal expansion. The shifting support of the prime minister between these two camps was a key determinant of changes in Japanese fiscal policy.;This domestic balance of forces was constantly exposed to international influences. On the one hand, US pressure for fiscal expansion and the rapid appreciation of the yen driven by financial market forces both tilted the MOF-LDP power balance in favor of the LDP. Underlying power asymmetry in the postwar US-Japanese economic relationship also constrained the MOF's room to maneuver in pursuing its policy goal. But ultimately, the tacit transnational coalition between the LDP and the US administration (and market players) could not decisively overcome the powerful resistance of the MOF, unless it received the clear support of the prime minister.;It is argued that the unexpectedly significant role of the prime minister in Japanese fiscal policymaking after the mid-1970s is due to two extraordinary conditions that are difficult to find in other policy areas: (1) the peculiar nature of the MOF-LDP relationship which had emerged by the mid-1970s and (2) the increasing importance of macroeconomic policy in Japanese diplomacy since the mid-1970s.;This dissertation also addresses a broader question: Under what conditions are transnational coalitions likely to emerge that are powerful enough to cause significant change in the macroeconomic policy of advanced industrial nations? In addressing this question posed by the current literature on macroeconomic coordination, the present dissertation emphasizes the importance of the macroeconomic policymaking institutions of governments. It also suggests that a systematic analysis must examine the effects of international power asymmetry and financial market forces, in addition to that of domestic politics, on macroeconomic coordination.