"Although the current global financial crisis is much more than Japan's 'Great Recession' writ large, many have turned to Japan's experience to either support or oppose various policies and to improve general understanding of the underlying forces of financial crises. […]. Fiscal stimulus did have the desired economic effect in Japan, but it mainly substituted for depressed bank lending and consumer spending. Recovery had to wait until the balance sheets of banks and households had been rehabilitated. Japan also shifted its policy focus toward reducing its fiscal deficit 'too early' after authorities thought the recession had ended in 1996. The ensuing increase in taxes along with reduced fiscal stimulus (along with the 1997-98 Asian Financial Crisis) pushed the economy back into recession. In monetary policy, the Bank of Japan's zero-interest rate policy demonstrated the futility of attempting to induce investment and consumer credit purchases through low borrowing rates. The Japanese experience also may be instructive in resolving problems of companies that technically are bankrupt but are being kept alive through outside financial support and in dealing with nationalization and subsequent privatization of insolvent banks. . […]. Overcoming the crisis in Japan's banks took a combination of capital injections, new laws and regulations, stronger oversight, a reorganization of the banking sector, moderate economic recovery, and several years of banks working off their non-performing loans."
CRS Report for Congress, RS22960