Is the world economy turning Japanese?


Allan Conway

Allan Conway

Head of Emerging Market Equities

For 25 years Japan has seen low growth, low or negative inflation and low bond yields. Is this malaise spreading? This note looks at the Japan experience and compares it with the US, Europe and China since the 2008 financial crisis.

Japanese disease

Japan enjoyed massive investment after World War 2 as the economy re-industrialised but investment and spending became over extended. An investment boom led to a debt boom as companies over extrapolated rates of growth into the future and over invested, mostly financed by debt. An asset bubble ensued in the late 1980s but burst in 1990 weighing on the economy and growth slowed to near zero by the end of 1992. As the 1990s progressed, Japan became a zero percent economy with inflation and real interest rates joining growth at around or below zero, where levels have since approximately stayed.

So, why are its effects still being felt? We have a lot of possible culprits, none of them entirely convincing as sole explanations. The full answer is probably a combination of effects. See the appendix for a full diagnosis of the ‘’Japanese disease’’ but in short;

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  • Allan Conway
  • Economics