The Japanese economy has dominated macroeconomic discussion for decades. In lecture halls and press galleries alike the lessons learnt from the great crash of 1991 which saw stock land prices plummet, GDP shrink, markets lose trillions of yen and left tax payers to fork the bill. This was followed by a decade, or perhaps, two-decade long recession is still being preached till this very day. Today, much is spoken about the hangover from this dark period of the Japanese economy. Self-styled experts will tell you that the structural problems of the Japanese economy stemming from this period leave a bleak outlook. An aging workforce, stagnant wage growth and the highest debt to GDP ratio in the world would suggest that Japan’s economy is on the verge of collapse. But is it?
In short—no. Without doubt Japans economy has some issues to resolve however it is moving in the right direction. The first step to resolve any problem is to admit there is a problem. After years of denying what had happened and blame shifting, the Japanese people elected pragmatic leaders who are willing to admit there is a problem that must be faced. Prime Minster Shinzo Abe’s famous “Abenomics,” although not a roaring success, has led to many improvements in the Japanese labour force, particularly for women. This along with increasing skilled immigration, a targeted birth rate policy and monetary policy designed to decrease Japans debt burden, give Japan’s economy in a brighter future. Don’t believe it? The truth is in the data.
In the broader economy, Japan’s holistic GDP figures have declined over the past half-decade and seem to not compare to the US or China. This figure however does not show the whole story. Taking a per capita approach, adjusting for inflation, shows that real output outstripped the US since the turn of the millennium.
In the labour market, Japan is practically at full employment. An unemployment rate hovering around 2.8% is remarkably low. Even more remarkable is the fact that unlike most advanced economies, the labour force participation rate is trending upwards. At around 74.5% of working age citizens, compared to 62.9% in the US or 64.6% in Australia are in the labour force. In terms of wages, most economists believe that this should stimulate Japan’s stagnant wages. The reactions to this from a sceptic are that it is unsustainable. Either due to an aging population or the old Japanese belief that it is about the collective and companies are sacrificing profits for employment. The former could have some truth to it, the latter is outright wrong.
Despite an inflated yen price, profits are soaring. Company profit margins haven’t been this high in decades; companies are no longer sacrificing profits for employment. The Japanese population is ageing, any economist worth their salt will tell you that. Targeted policies however show that the fertility rate is trending upward and with an increase in skilled immigration Japan’s labour market should be able to mitigate any shocks.
With the highest national debt levels in the world it is easy to dismiss the Japanese economy as unstable. By looking at the type of debt specifically, it is clear why dismissing it would be foolish. Firstly, most corporate debt and all government debt is denoted in Japanese Yen and most Bank of Japan (BOJ) bonds are held domestically. Simply, this mitigates the risk of capital outflows. Secondly, thanks to the BOJ policy, Japan is also the fastest falling debt burden in the world. Finally, as Japan has substantial investments in overseas and domestic assets, which reduce the debt burden on a net basis. These three factors illustrate that although the debt ratio is very high, it should not limit Japans economy in the future.
Japans economic status may be up for debate but it’s culture is not. Violent crime is inconceivably low. In Tokyo in 2016 people handed over a record 3.67 billion yen in lost cash, and about three-quarters of that money ended up back with its rightful owners. And the Japanese have virtually no fear of being robbed. These facts among its natural beauty are leading to record number of tourists flocking to Japan with no sign of tourism slowing down. This will further fan the flame of a stable economy.
Japans economy is not all doom and gloom. Its economic problems have been tackled head on and its showing true results. In many ways, its economy is the envy of the world. Japan’s labour force is increasing, its companies are growing their margins, its debt is manageable and most importantly—its leaders are willing to accept the realities and refuse to be frozen in partisanship.
Carl Hemberg is an Economics and international relations major at Griffith University & Brisbane Project Officer for Young Australians in international affairs.