Japan once again represents a potential future to many in the US and Europe. But rather than the promise of a fast-growing, high-tech economy that it offered in the 1980s, today it raises the spectre of “Japanification” — low growth, virtually non-existent inflation, high public debt and a persistent inability to address any of these problems.
As an FT series has described, there are many lessons for other rich countries from the successes and failures of the archipelago nation in its response to financial crises and its attempt to recover from them. As the world looks for options to prevent long-term stagnation and deal with public and private debt burdens after the coronavirus pandemic ends, many believe Japan can provide a warning of what not to do. In fact, its experience should be regarded as an example to others on how they can age gracefully.
In the three decades since Japan’s real estate bubble burst in the early 1990s there has been little overall economic growth or inflation. The easiest monetary policy in the world — interest rates have been not much above zero for decades — has done little to restore price growth and expectations of its return remain at rock bottom, despite repeated attempts by the Bank of Japan to raise them. This has helped to leave it with the highest proportion of national debt to income of any country.