Something Is Afoot With Japan’s Economy

Deflation’s Departure

While Americans are struggling with the pressure of persistently high inflation, price increases are more than welcome on the other side of the world.

For almost three decades, Japan has battled a stagnant economy, and consistent deflation, even coining its own economic term for it: Japanification. However, recent global upheaval, including the Russia-Ukraine war and pandemic-era supply chain disruptions, have shifted the tide.

Economic Evolution

In the early 1990s, Japan’s asset price bubble burst, and the country’s stock market crashed, leading to extensive fiscal stimulus, and looser monetary policy. The period that followed is also known as Japan’s “Lost Decade”.

Fast forward to today: Japan is experiencing moderate increases in the price of energy, and food, and as a knock-on, rising wages too. While its current 3% inflation rate might not sound like much to Americans who experienced a peak of more than 9% last year, it’s a big deal for a country that has only seen inflation top 4% just once in the past decades.

A Lesson to Learn

There are lessons to be learned from Japan’s economic idiosyncrasies, including this one: Although fueled by external shocks, Japan’s proactive approach, involving hundreds of billions of dollars in extra spending, has been instrumental in this turnaround.

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