Ultra-expansionary monetary policy, public debt that continues to grow, but slow growth: such has been the situation in Japan for thirty years. The Land of the Rising Sun defies the usual rules of the economy …
Japan remains the third largest economic power in the world, the homeland of Toyota, Uniqlo and Sony, the world’s largest exporter of industrial robots. But it is also a country which is experiencing an incessant demographic decline and has lived for thirty years with an average GDP growth of 0.8% per year. And the “Abenomics”, these measures intended to boost activity put in place in 2012 by the then Prime Minister, Shinzo Abe, can do nothing about it.
Rapid expansion until the early 1990s
Yet, until the early 1990s, Japan lived at the rate of rapid expansion: “In the 1980s, the Japanese were investing all over the world. So much so that the United States ended up perceiving it as a threat ”, recalls Hervé Goulletquer, Deputy Director of Research at La Banque Postale Asset Management.
In 1985, Washington pressured Japan to revalue the yen. This lowers the Tokyo Stock Exchange and causes the bursting of a real estate bubble. “The country then found itself facing a crisis. He had seen too big, had invested too much. And these investments could no longer be profitable ”, explains Hervé Goulletquer.
The slowdown is lasting. There is no question for Tokyo to bear the cost of the crisis on households or businesses. It is therefore the public administrations that pay the price by borrowing. “The country has chosen to manage this crisis over the long term”, notes the economist.
Debt in the hands of the inhabitants
The result is a debt that now stands at 240% of GDP, while the State continues to take on debt to stimulate activity. Japanese debt remains mainly in the hands of the inhabitants. It is protected from market movements. The Bank of Japan continues to inject liquidity, to keep interest rates at zero. But, despite all these efforts, growth remains weak and inflation zero. Unemployment, too, is close to zero because of the tradition of social cohesion.
“What the Japanese have invented over the past three decades is a period of stability. In my opinion, Japan is a bit of a mirror in which we can contemplate what could be our future ”, Hervé Goulletquer analysis.
In August, Prime Minister Shinzo Abe resigned. His successor, Yoshihide Suga, remains on the same economic policy. To get out of the recession linked to the Covid epidemic, he opted for a vast recovery plan which weighs 20% of GDP, a record. And, even if this does not allow Japan to return to its level of growth of the 1980s, it should be enough for it to regain stability.