From Keynesianism to Monetarism: Japanese Monetarism in the Second Half of the 20th Century

Giorgi Kepuladze  Tamila Arnania-Kepuladze

Journal number 1 ∘ Giorgi Kepuladze ∘ Tamila Arnania-Kepuladze ∘
From Keynesianism to Monetarism: Japanese Monetarism in the Second Half of the 20th Century

DOI: 10.52340/ekonomisti.2026.01.07

Expanded Summary

The global structural crises in the 1970s sparked a widespread debate about the ineffectiveness of traditional fiscal policy. It was during this period that significant changes began to occur in the Japanese financial system, and Japanese economic science shifted toward monetarism.

In the second half of the 20th century, Japanese monetarism was a specific adaptation of the global monetary school’s ideas to Japan\\\'s socio-economic and institutional conditions. Unlike “classical” monetarism, which is mainly associated with the works of Milton Friedman and the ideas of the Chicago School, the Japanese version of monetarism developed in close connection with the post-war transformation of the national economy, industrialisation and subsequent structural changes in Japan.

Monetarism in Japan is characterised not by a mechanical transfer of Western theories to Japanese soil, but by their reinterpretation that takes into account the specific features of the national economic model, such as the close interaction between the state, the banking system and corporations, the desire of the population to save, and the specificity of the Japanese capital market.

A distinctive feature of Japanese monetarism is its institutional character. Japanese monetary policy has never been considered outside the context of long-term development strategies, industrial policy, and structural reforms.

The Bank of Japan (BoJ) played a key role in the institutionalisation of monetarism. Unlike many Western banks, the Bank of Japan often combined the classical regulation functions of the money supply with the goals of promoting economic growth and stabilising financial markets.

The transition of Japanese economic thinking to a new monetary paradigm was not straightforward. It had a dual effect: on the one hand, the focus on monetary and economic policy ensured the stability of prices and financial markets in the country, and on the other hand, it led to a slowdown in economic growth and a decrease in domestic demand, which became especially pronounced in the last decade of the 20th century and was called the "lost decade".

Despite such heterogeneity, it was during this period that the economic and theoretical basis for Japan\\\'s new macroeconomic paradigm was formed, which included three components: control of the money supply, flexible government regulation of socio-economic processes, and institutional coordination of these processes by the Bank of Japan and ministries, which led to the formation of a "soft" version of monetarism in Japan.

EKONOMISTI The international scientific and analytical, reviewed, printing and electronic journal of Paata Gugushvili Institute of Economics of Ivane Javakhishvili Tbilisi State University

DOI: 10.52340/EKONOMISTI DOI: 10.36172/EKONOMISTI E ISSN 2346-8432 Print ISSN 1987-6890	Journal number 1 ∘ Giorgi Kepuladze ∘ Tamila Arnania-Kepuladze ∘ From Keynesianism to Monetarism: Japanese Monetarism in the Second Half of the 20th Century DOI: 10.52340/ekonomisti.2026.01.07 Expanded Summary The global structural crises in the 1970s sparked a widespread debate about the ineffectiveness of traditional fiscal policy. It was during this period that significant changes began to occur in the Japanese financial system, and Japanese economic science shifted toward monetarism. In the second half of the 20th century, Japanese monetarism was a specific adaptation of the global monetary school’s ideas to Japan\\\'s socio-economic and institutional conditions. Unlike “classical” monetarism, which is mainly associated with the works of Milton Friedman and the ideas of the Chicago School, the Japanese version of monetarism developed in close connection with the post-war transformation of the national economy, industrialisation and subsequent structural changes in Japan. Monetarism in Japan is characterised not by a mechanical transfer of Western theories to Japanese soil, but by their reinterpretation that takes into account the specific features of the national economic model, such as the close interaction between the state, the banking system and corporations, the desire of the population to save, and the specificity of the Japanese capital market. A distinctive feature of Japanese monetarism is its institutional character. Japanese monetary policy has never been considered outside the context of long-term development strategies, industrial policy, and structural reforms. The Bank of Japan (BoJ) played a key role in the institutionalisation of monetarism. Unlike many Western banks, the Bank of Japan often combined the classical regulation functions of the money supply with the goals of promoting economic growth and stabilising financial markets. The transition of Japanese economic thinking to a new monetary paradigm was not straightforward. It had a dual effect: on the one hand, the focus on monetary and economic policy ensured the stability of prices and financial markets in the country, and on the other hand, it led to a slowdown in economic growth and a decrease in domestic demand, which became especially pronounced in the last decade of the 20th century and was called the "lost decade". Despite such heterogeneity, it was during this period that the economic and theoretical basis for Japan\\\'s new macroeconomic paradigm was formed, which included three components: control of the money supply, flexible government regulation of socio-economic processes, and institutional coordination of these processes by the Bank of Japan and ministries, which led to the formation of a "soft" version of monetarism in Japan.