Final answer:
The other villain in Japan's 1990s crisis, besides bureaucracy, was the Japanese banking system, which faced deep financial troubles due to non-performing loans, lack of regulatory action, and a general reluctance to address the underlying financial issues, furthering economic stagnation.
Step-by-step explanation:
The other villain identified in political explanations for Japan's crisis during the 1990s, alongside the powerful bureaucracy, was the Japanese banking system. The banks were a major factor due to their deep financial troubles, which were left largely unaddressed. Financial institutions in Japan were burdened with non-performing loans and weak regulatory responses, contributing significantly to the prolonged economic downturn that became known as the "Lost Decade."
The economic troubles in Japan began in the early 1990s when the asset price bubble, which had grown significantly during the late 1980s, burst. The ensuing deflation and debt-laden balance sheets caused a severe banking crisis. Banks continued to carry bad debts, often not disclosed in balance sheets, thus avoiding the recognition of losses and the need for capital replenishment. This lack of transparency and the sluggish response from government policymakers led to a prolonged period of economic stagnation.
The rigid framework that had served Japan so well during its high-growth period turned into an impediment during this time of crisis, as both bureaucrats and bankers were slow to respond to the rapidly changing economic environment. This crisis was not unique to Japan, as banking sectors around the world have faced similar challenges of reluctance or inability to address underlying problems in the banking system effectively.