日本：新的十年

Preview

Certain general global trends in inflation and interest rates have been in evidence since the pandemic. In many countries, including the US, inflation rose (often sharply), triggering an interest-rate hiking cycle. Consequently, real rates rose, and this tightening of central bank monetary policy has resulted in inflation now trending down across a wide range of countries. There is one significant exception to these global trends: Japan. The Bank of Japan (BoJ) has so far steadfastly maintained its policy rate around 0%, even as inflation has continued gradually rising. As a result, real rates have remained negative in Japan, becoming more deeply so as inflation has risen.

There is an argument that this policy might still make sense for Japan at present, given that the country has faced excessively low inflation or deflation for a couple of decades now. Policymakers would want to be confident about the expected future path of inflation before exiting from their long-held accommodative policy stance.

This paper examines a critical issue in this regard: Has Japan exited the low inflation decades?

Executive summary

• Following the bursting of an asset price bubble in the early 1990s, Japan suffered through a period known as the “lost decades.” These were characterized by low inflation or deflation, accompanied by stagnant nominal growth and wages. The legacy of this period remains today, with Japan continuing to follow an ultra-accommodative monetary policy for fear that current (relatively high) inflation is not sustainable.
• Our view, however, is that Japan is in the process of decisively exiting from the stagnation that marked the lost decades. We believe that the policies implemented under “Abenomics” have, since 2013, laid the groundwork for this to happen. Such policies encompassed a combination of expansionary monetary policy, stimulative fiscal policy, and structural reforms (including corporate governance and labor market reforms) intended to place Japan on a higher growth path. Indeed, we believe that the structural changes we are seeing in Japan represent such a decisive break from the past few decades that they might be seen as a positive shock akin to the Meiji Restoration, which ushered in the era of modern Japan.
• The incipient benefits in improving growth and inflation from these policies were, perhaps ironically, given further impetus by the shocks seen in the past few years from the COVID-19 pandemic and the Russia-Ukraine war.
• The supply-chain issues arising from both these factors raised import prices in Japan and further fueled emerging inflationary pressures, which have since been reinforced by some of the strongest wage growth seen in decades. The tight labor market—as well as changes in both wage and price setting behavior—is, in our view, setting the scene for a sustained higher inflation path.
• Meanwhile, the geopolitical ramifications of the past few years’ events have seen Japan being positioned as a beneficiary of the global reshoring trend, in which the relocation of investment into Japan is expected to underpin the improving growth trend from structural reforms. Japan’s geographic location, its position in the Western security alliance and its advantages in areas such as robotics all serve to make Japan an attractive reshoring destination, in our view.
• Consequently, we believe Japan is entering a new decade of sustainable growth and inflation in which a virtuous reflationary cycle is taking hold.
• As always, there are risks to our outlook. These risks could include negative global shocks, headwinds from Japan’s demographic situation and fiscal risks due to Japan’s exceedingly high level of government debt.