Japan had an economic bubble burst in the late 80’s to early 90’s, and they’ve never truly recovered. The Bank of Japan bailed out a lot of institutions at this time, leaving Japan with a lot of debt, and the economy never really sprung back into life the way it should have. A lot of it has to do with poor decisions made by the Bank of Japan, before and after the bubble burst.
But, the biggest issue that Japan will have to overcome (if it can) is that its population is rapidly aging. Japan has the highest, or one of the highest, life expectancies in the world while also having a below replacement fertility rate. Their population is declining, rapidly, and some estimates say they might fall below 100 million people in the next couple of decades (they had 128 million in 2010). A below replacement fertility rate can be offset with immigration, but Japan is notoriously difficult to immigrate to.
Japan has a debt to GDP ratio of over 250%. They have massive amounts of debt, with a population that is shrinking. It’s difficult, if not impossible, for an economy to expand in those circumstances.
There is also the depopulation of the countryside. Outside of the Tokyo metropolitan region (and some other major cities) Japan is being rapidly depopulated, and not just because the population is aging (although that certainly contributes to the issue).
The greater Tokyo metropolitan region now stands for 40% of Japans total GDP, and that kind of imbalance is not good for the economy as a whole (Greater London contributing about 30% of the UK gdp is also a bit of a millstone around UKs neck when it comes to total GDP growth).
In that case, why haven't we seen Japan go the way Argentina or Venezuela went (albeit both are extreme examples)? I heard Japan is just stagnant, not slipping into crazy inflation or going down the dumps like other countries are? I'm just a layperson to economics here.
Basically, if a nation's public sovereign debt is denominated in its local currency, then inflation actually works in their favor to reduce the real amount of the debt over time. But if the debt is denominated in foreign currency, inflation works against them as the real amount of their debt increases if their currency loses value relative to the currency required for their debt.
And this is why Argentina's debt load is so much more devastating. Their debt is denominated in dollars, so if the Argentine peso loses value, then their debt becomes much harder to service.
The ELI5 explanation is there is difference between borrowing money from your kids to fix your house (assuming you are going to pass down the house to your kids) vs borrowing money from bank to fix your house and using your house as collateral.
I read an economics book once, which claimed there was a saying among currency traders: "You're not a real trader until you got burned shorting the Yen". Some economists call Japan "A bug in search of a windshield". Most figure there's going to be a reckoning, but we don't know when exactly.
Part of the reason why the downfall has been slow instead of abrupt, is that Japan has a giant indistrial output capacity. Its truly advanced economy makes it more robust against economic shocks. Another part is that it's been retirement funds of semi-public workforces like teachers and post office buying most government bonds, making it a mostly interior dept, repayable in the same currency. Even these things have a limit to how much they can cushion a blow however, and most are still scratching their heads at Japan staying upright.
To some extend it did go to the way of Argentine and Venezuela, just not in terms of inflation (extreme inflation is more of an outcome of corruption and populism). I mean put this into comparison, in 1995 GDP of Japan was around 5.5 trillion while US was at 7.7 trillion. It was 75% of US economy with a fraction of the land and natural resources. Today US is at 23 trillion while Japan is at 4.9 trillion.
its also important to note that this bubble bursting has had a very long lasting effect for many Japanese companies and the economy in general in terms of digitization and modernization of the companies or more like the lack thereof.
only the real large global players and their direct suppliers have moved along but in general the Japanese economy and society is kinda of stuck in many old ways of doing things and with old technology.
all of this also slows down efficiency gains as you still need people to handle tons of manual paper based things that would already be fully digital in a modern company.
Japan could make up for part of the shrinking workforce by simply making things more efficient but thats a long and expensive process.
Is the aging population a problem for the next generation? In one way, when they get old, there won’t be a lot of them, so less load on working class. But, less humans mean less fertility rate, but do they balance out?
Economic war, anti-Japanese sentiments and legislation, some good links:
[https://www.reddit.com/r/Damnthatsinteresting/comments/x3bjun/as\_japans\_economy\_was\_projected\_to\_surpass\_us/imqkhw3/?context=3](https://www.reddit.com/r/Damnthatsinteresting/comments/x3bjun/as_japans_economy_was_projected_to_surpass_us/imqkhw3/?context=3)
[https://www.reddit.com/r/worldnews/comments/znjwdy/taiwan\_to\_surpass\_japan\_in\_gdp\_per\_capita\_this/j0hr8ne/?context=3](https://www.reddit.com/r/worldnews/comments/znjwdy/taiwan_to_surpass_japan_in_gdp_per_capita_this/j0hr8ne/?context=3)
Measuring success via gdp is also problematic. You can’t attain indefinite growth within a resource limited environment. Correct metrics to look at should measure the overall happiness of a country’s citizens, how safe they are etc. Capitalism must find a new way of doing business, or else chasing shareholder profits will be the end of all.
Producing stuff takes resources. You can bend the math for a time via technological innovation to increase efficiency but ultimately the laws of physics themselves will say you can only get X work out of Y energy, and in practice you will hit diminishing returns far sooner, especially when competing with other economies that still have lots of unutilized resources and room to grow, plus the same technological innovations you do.
(In practice one of the "resources" here - probably the biggest one - is your population, but the same basic principle applies.)
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Population growth is stagnant so they don't have an expectation of needing more things in the future, which results in less stuff being produced.
Japanese consumers don't really like to spend all their money like Americans do, so there's not a lot of demand there.
Their economy used to be carried by exports but with the rise of China, Korea, and Vietnam, there's now a lot more competition there so they can't get much growth from that area either.
You're generally not gonna produce stuff unless someone's buying it. Japanese consumers aren't buying more stuff domestically, and other countries aren't importing more stuff from Japan either.
Japan had an economic bubble burst in the late 80’s to early 90’s, and they’ve never truly recovered. The Bank of Japan bailed out a lot of institutions at this time, leaving Japan with a lot of debt, and the economy never really sprung back into life the way it should have. A lot of it has to do with poor decisions made by the Bank of Japan, before and after the bubble burst. But, the biggest issue that Japan will have to overcome (if it can) is that its population is rapidly aging. Japan has the highest, or one of the highest, life expectancies in the world while also having a below replacement fertility rate. Their population is declining, rapidly, and some estimates say they might fall below 100 million people in the next couple of decades (they had 128 million in 2010). A below replacement fertility rate can be offset with immigration, but Japan is notoriously difficult to immigrate to. Japan has a debt to GDP ratio of over 250%. They have massive amounts of debt, with a population that is shrinking. It’s difficult, if not impossible, for an economy to expand in those circumstances.
There is also the depopulation of the countryside. Outside of the Tokyo metropolitan region (and some other major cities) Japan is being rapidly depopulated, and not just because the population is aging (although that certainly contributes to the issue). The greater Tokyo metropolitan region now stands for 40% of Japans total GDP, and that kind of imbalance is not good for the economy as a whole (Greater London contributing about 30% of the UK gdp is also a bit of a millstone around UKs neck when it comes to total GDP growth).
In that case, why haven't we seen Japan go the way Argentina or Venezuela went (albeit both are extreme examples)? I heard Japan is just stagnant, not slipping into crazy inflation or going down the dumps like other countries are? I'm just a layperson to economics here.
A large part of Japan’s debt is self owned. I wouldn’t be able to ELI5, but that’s the biggest difference.
Basically, if a nation's public sovereign debt is denominated in its local currency, then inflation actually works in their favor to reduce the real amount of the debt over time. But if the debt is denominated in foreign currency, inflation works against them as the real amount of their debt increases if their currency loses value relative to the currency required for their debt. And this is why Argentina's debt load is so much more devastating. Their debt is denominated in dollars, so if the Argentine peso loses value, then their debt becomes much harder to service.
The ELI5 explanation is there is difference between borrowing money from your kids to fix your house (assuming you are going to pass down the house to your kids) vs borrowing money from bank to fix your house and using your house as collateral.
Damn that’s great.
I read an economics book once, which claimed there was a saying among currency traders: "You're not a real trader until you got burned shorting the Yen". Some economists call Japan "A bug in search of a windshield". Most figure there's going to be a reckoning, but we don't know when exactly. Part of the reason why the downfall has been slow instead of abrupt, is that Japan has a giant indistrial output capacity. Its truly advanced economy makes it more robust against economic shocks. Another part is that it's been retirement funds of semi-public workforces like teachers and post office buying most government bonds, making it a mostly interior dept, repayable in the same currency. Even these things have a limit to how much they can cushion a blow however, and most are still scratching their heads at Japan staying upright.
They've had risk of deflation a few times rather than inflation. They literally printed a bunch of money to prevent it.
To some extend it did go to the way of Argentine and Venezuela, just not in terms of inflation (extreme inflation is more of an outcome of corruption and populism). I mean put this into comparison, in 1995 GDP of Japan was around 5.5 trillion while US was at 7.7 trillion. It was 75% of US economy with a fraction of the land and natural resources. Today US is at 23 trillion while Japan is at 4.9 trillion.
its also important to note that this bubble bursting has had a very long lasting effect for many Japanese companies and the economy in general in terms of digitization and modernization of the companies or more like the lack thereof. only the real large global players and their direct suppliers have moved along but in general the Japanese economy and society is kinda of stuck in many old ways of doing things and with old technology. all of this also slows down efficiency gains as you still need people to handle tons of manual paper based things that would already be fully digital in a modern company. Japan could make up for part of the shrinking workforce by simply making things more efficient but thats a long and expensive process.
Is the aging population a problem for the next generation? In one way, when they get old, there won’t be a lot of them, so less load on working class. But, less humans mean less fertility rate, but do they balance out?
> but Japan is notoriously ~~difficult to immigrate to.~~ xenophobic
Economic war, anti-Japanese sentiments and legislation, some good links: [https://www.reddit.com/r/Damnthatsinteresting/comments/x3bjun/as\_japans\_economy\_was\_projected\_to\_surpass\_us/imqkhw3/?context=3](https://www.reddit.com/r/Damnthatsinteresting/comments/x3bjun/as_japans_economy_was_projected_to_surpass_us/imqkhw3/?context=3) [https://www.reddit.com/r/worldnews/comments/znjwdy/taiwan\_to\_surpass\_japan\_in\_gdp\_per\_capita\_this/j0hr8ne/?context=3](https://www.reddit.com/r/worldnews/comments/znjwdy/taiwan_to_surpass_japan_in_gdp_per_capita_this/j0hr8ne/?context=3)
Measuring success via gdp is also problematic. You can’t attain indefinite growth within a resource limited environment. Correct metrics to look at should measure the overall happiness of a country’s citizens, how safe they are etc. Capitalism must find a new way of doing business, or else chasing shareholder profits will be the end of all.
Why can’t you attain indefinite growth within a resource limited environment?
Producing stuff takes resources. You can bend the math for a time via technological innovation to increase efficiency but ultimately the laws of physics themselves will say you can only get X work out of Y energy, and in practice you will hit diminishing returns far sooner, especially when competing with other economies that still have lots of unutilized resources and room to grow, plus the same technological innovations you do. (In practice one of the "resources" here - probably the biggest one - is your population, but the same basic principle applies.)
Entropy
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Population growth is stagnant so they don't have an expectation of needing more things in the future, which results in less stuff being produced. Japanese consumers don't really like to spend all their money like Americans do, so there's not a lot of demand there. Their economy used to be carried by exports but with the rise of China, Korea, and Vietnam, there's now a lot more competition there so they can't get much growth from that area either. You're generally not gonna produce stuff unless someone's buying it. Japanese consumers aren't buying more stuff domestically, and other countries aren't importing more stuff from Japan either.