Macroeconomic Policy Divergence Between Germany and Japan, 1980s to the Present: Varieties of Capitalism, Ideas, Interests, and Economic Structures

In the wake of the 2008 Great Recession, advanced industrial democracies faced somewhat similar economic challenges but nonetheless adopted policies that diverged significantly. One interesting divergence that emerged is between the policy approaches of Japan and Germany. Japan eventually pursed of a policy of quantitative easing and loose fiscal policy, while Germany supported the relatively stricter monetary policy of the ECB and fiscal austerity.  The divergence is interesting because Japan and Germany have been considered to be very similar in many regards.  Both have been classified as coordinated market economies in the varieties of capitalism literature; both emphasize manufacturing; both have a significant reliance on exports and export-led growth; both have large current account surpluses; and both focus on higher cost, higher quality goods among other things.  This analysis will explore why Germany and Japan have pursued such divergent fiscal and monetary policies in spite of so many other similarities. The analysis will trace the divergence to policy challenges and policy choices in the 1980s right before and after the Plaza Accord.