In some ways the country has been dealt a bad hand, but it has played it well
Matthew Lynn City columnist
Investors have been burned so many times by the “Japanese recovery” story that they have learned to ignore it. Ever since the epic Tokyo bull market of the 1980s crashed, there have been plenty of false dawns. They have always ended badly. Still, there is no mistaking the strength of Japanese equities over the last year. Over the last 12 months, the Nikkei 225, made up of Japan’s largest companies, is up by 35%, and over the last five years it is up by 74%. It is hitting highs that have not been seen in more than 30 years, an entire career for most investors. The epic bear market that started with the bursting of the Japanese bubble of the 1980s finally looks to be over.
More stuff for fewer people
We will find out over the coming year whether that is durable. The more interesting question is, are there other lessons that the rest of the world can take from Japan’s success? On the surface, the answer would seem to be no. The headline figures are dismal. The country is forecast to grow by only 1.6% this year, and for much of the last year Japan has been stuck in permanent recession, accompanied by zero inflation, with prices often falling in absolute terms. The economy has become a textbook instance of zero growth that policy markers regularly use as an example of what they are trying to avoid.
But that is because Japan has a declining population, and conventional GDP just measures total output. If you measure GDP per capita, it has done much better. According to Bloomberg data, there was a 62% appreciation in GDP per capita from 2013 to 2022 in local currency terms, the best performance of any of the countries in the G7. It easily beat France, the UK, Germany and the US. Japan’s population is now in steady decline, falling from 128 million people in 2013 to 124 million last year. It is still going down and, with no sign of an increase in the birth rate, it will carry on going down for a few decades to come. The result? Although total output only increases modestly, at best, every year, output per person, and therefore the income per person, rises far more rapidly. It may look stagnant, but Japan is still a country where living standards are generally rising.
In fact, Japan got two things right. First, although it has increased immigration slightly to cope with its declining birth rate, it has not tried to fix a
