Japan Is On The Rise

Japan may uniquely benefit from a wage-price spiral.

I enjoy opera, but I struggle with the language. I know some French and Italian, but it is hard to make out words and phrases when they are being sung at 100 decibels.

That is one of the reasons that my favorite operatic work is Gilbert and Sullivan’s The Mikado. Sung in English, it is a spoof of British politics set in imperial Japan. A 1983 production of the work replaced the royal court with an automobile company, and the emperor entered a shiny new Datsun. It seemed fitting: at the time, Japan and its industries were on top of the world.

As the 1980s came to a close, Japan suffered a serious fall. Thirty years of economic stagnation ensued. Today, however, prospects for Japan are looking brighter than they have in a long time.

Numbers only begin to describe Japan’s fall from grace. Its main stock market index, the Nikkei 225, remains 15% below the peak it reached at the end of 1989. Japan’s real gross domestic product (GDP) has grown at an annual pace of just 0.8% since then. The Bank of Japan (BoJ) has done so much to stimulate growth that its balance sheet is larger than Japan’s national income.

Beyond that, Japan is an aged (not aging) country that has acquired a reputation as a poor source of innovation. China rose to become a formidable competitor; its GDP surpassed Japan’s in 2010. Japan’s late prime minister Shinzo Abe attempted to breathe life into the economy with his “three arrows” program (monetary, fiscal and structural reforms) but had only limited success.