> By finding niches where they have market power, firms can reduce their exposure to safe haven capital inflows and volatile exchange rates. But that would als

> By finding niches where they have market power, firms can reduce their exposure to safe haven capital inflows and volatile exchange rates. But that would also exacerbate the flux of capital. That Japan has a large number of Murata Manufacturing-like producers is exactly why the Yen appreciated so sharply. That strategy makes sense for each corporation, but on a national scale it's a great way to find yourself overly specialized and with a diminished safety margin for even your niche, up-market products. So the paper's advice is also part of the reason for the dilemma. The paper's first bit of advice was to save during profitable periods and spend during downturns. But there's a cooperation problem in that the first companies to apply the aforementioned advice won't have to be as skillful at navigating the swings, so the tendency will be for every company to pursue that strategy even though only a few will succeed while the others are merely hastening their demise. Seems to me there need to be some institutional mechanisms in place to maximize long-term profitability and stability. I suppose the Keiretsu provided a mechanism like this--a self-interest in investing in diverse sectors, even during downturns. But they're diminishing as Japanese industrial practices increasingly mirror those in America and Europe.