The central idea behind the word “Japanification” is that an economy loses altitude in its growth trajectory for an extended period. It is associated with low-interest rates, low inflation and high government indebtedness. The extent to which these factors are causal agents or just the side effects is hotly debated by economists.
Once not too long ago most countries wished to be like Japan as the country quickly turned around its economic fortunes with technology and development. So much so that Japanification was a matter of pride for most countries. Not anymore. Japanification has come to mean a country that has been suffering from all kinds of stagnation: political, demographic and economic.
As a visual, here’s Japan’s long-term nominal GDP in US dollar terms:
The chart is pretty similar in yen, too. It’s three decades of economic stagnation, any way you look at it.
One important point to stress is that, on some measures at least, Japan’s economic performance has not been all that bad – or at least not so bad as to justify some of the more extreme headlines it has received. Since the start of this decade, Japan’s working-age population has contracted by around 0.5% a year. Yet despite this, GDP has increased by an average of 1.3% a year and GDP per capita has increased by an average of 1.5% a year. While this is not a stellar performance, it doesn’t amount to the “lost decade” of growth that some have used to describe Japan’s recent experience.
Current concerns about the possibility of Japanification are centred more on Europe where growth has been stubbornly low. Experts say the coronavirus outbreak is resulting in economic damage that poses the greatest risk faced by the eurozone since the 2008 financial crash.
The developed world appears to have entered a period of Japan-style low growth, low inflation and super-loose policy. What about the emerging world? Well, the good news is that the issues I’ve outlined in this note only affect those countries at the technological frontier. In that sense, the emerging world is immune to all of this. The bad news, however, is that emerging markets are facing challenges of their own. I’ll return to these in next week’s note.
In case you missed it: