Whatever Happened To Japan?

When we at PC Tower were much younger ....

Many Books Predicted Japan Overtaking The USA

.... all the talk was of Japan overtaking the USA as number one economy. 

In the late 1980s, the USA and Europe once feared the Japanese economic juggernaut, in much the same way that they fear China's economic might now. It had risen from a poor isolated group islands in the 1860's, to being the worlds second richest country and looked set to become the richest.

In 1868, fearing a repeat of China's fate at the hands of Western imperialists, Japanese reformers overthrew the military dictatorship of the Tokugawa Shogunate in an elite putsch, and restored the Meiji Emperors to full political power. The Samurai were forced to surrender their swords, cut their hair, put on Western suits and they marched into the government ministries in Kasumigaseki (the government district of central Tokyo). 

The Meiji government immediately set Japan on a course of rapid industrialisation and catch-up in all spheres, including warfare, so successfully, that by 1905 the Japanese navy defeated the Imperial Russian navy in a war over rival imperial ambitions in Manchuria and the Korean Empire (both of which Japan ended up with, as a part of its Asian empire in the 1930's).

This complete military victory of an Asian and non-Western nation, over a European and Western power, transformed the global balance of power, with Japan emerging as a great power, and the first non-European (white) power to do so in several hundred years. Of course the second world war, and Japan's total defeat in 1946, set the country back, but they emerged as non military super power again in the mid 1960's, when its role as a supply hub and provider of items to the US military in Vietnam, boosted its economy and industrial sector.

So much so, that by the 1980's Japan's corporate titans - Mitsubishi, Mitsui, Hitachi, Sony etc were masters of the world, and it was expected that they and Japan would over take the USA economically in the 1990's. The property boom or "Baburu Jidai" (bubble era) and the new money it created in Japan was so big, that it was joked at one point, that the grounds of the imperial palace in Tokyo were worth the same as all of California. It was often described as a country that had successfully become modern, without abandoning the traditional. 

Of course all bubbles burst, and in 1991 the Japanese property bubble duly burst. When the Tokyo stock market collapsed, all land and property prices in Japan collapsed as well, and even now have shown no signs of recovery e.g. A new home bought in 1992, started depreciating in value immediately, and after the mortgage is paid off 25, 30, or 40 years later (due to rising interest rates, many young Japanese buyers are taking out longer mortgages of 35 years or more), it is worth even less than it was then.

This malaise extended across all sectors, and so the Japan that the world expected and partly feared, never actually arrived. By the late 1990's the Japanese economy was stagnating and in recession, and has never really recovered and so for decades Japan has been struggling with a sluggish economy. The result of this are that:

• A third of Japanese people are over 60, making Japan home to the oldest population in the world after tiny Monaco, and a large number of people who can't afford to retire because of the pressure on healthcare and pensions.
• Japan has the highest public debt-to-GDP ratio in the world, at 261.29% (USA 121.31%, UK 102.636%).
• It is recording fewer births than ever before.
• By 2050, it could lose a fifth of its current population.
• Real wages haven't grown here in 30 years.
• In the late 1980's, Japanese people were richer than Americans. Now they earn less than Britons.
• Incomes in South Korea and Taiwan have caught up and even overtaken Japan.
• Just 13% of Japanese managers are women, and fewer than one in 10 MPs. 

But there are some compensations: 

• The longest life expectancy in the world,
• The lowest murder rate,
• The Shinkansen, the world's best high-speed rail network.
• Its a homogeneous country, with only about 3% of Japan's population foreign-born (compared to for example the 15% foreign-born in the UK).

Now when I was thinking about this, I also thought about the path China is currently on .... and there are parallels: 

• China has a rapidly ageing population and a dwindling pension budget.
• Almost a third of China's population (approx 402m people) will be aged over 60 by 2040, up from 254 million in 2019.
• China's main state pension fund will run out of money by 2035 (or earlier).
• China's population is falling, as its birth rate continues to decline. 
• While China's youth unemployment rate hit record highs of 21.3 percent in 2023 (and some have said that youth unemployment rate could have been as much as 46.5% if you add the 16 million non-students not actively seeking work).
  
• China has a housing price bubble that has recently burst.
• China's “off-balance-sheet government debt” is estimated to range somewhere between $7 trillion and $11 trillion. Much of this was local governments borrowing recklessly during the boom years to finance infrastructure etc. Much of it wasted on white elephant vanity building projects.
  
• China will miss its own 5% growth target for 2024, and has had a sluggish economy by its standards for several years.
• Much of China's non private sectors are heavily subsidised ... sectors like steel, and shipbuilding and are having a struggle finding the markets both at home (Chinese families are saving more and spending less), and abroad (many are dependent on US and western markets). US tariffs won't help matters going forward.

So while we once feared the Japanese juggernaut, and now the China express, maybe we shouldn't, perhaps China is following a different track than the one we expected, and the Japanese experience is the one we should now be expecting China to follow? Certainly, Donald Trump quickly gave up Japan bashing and instead turned successfully to pointing to the Chinese as the economic, ideological and military foe of the USA. “We can’t allow China to rape our country, and that’s what we’re doing.” 

Top GDP's (2024)

Perhaps however, the Chinese Communist Nationalism with continue to drive them as rivals to the USA in all spheres, but the jury is out on whether they will really overtake the USA, economically or militarily ..... only time will tell, but I suspect that just like the Japanese threat of the 1980's the Chinese economic challenge will falter.