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Will The Japan Economy Ever Revive

The only way to unshackle the Japanese economy has to be driven by domestic consumption. The ageing population, lowering of the working population to ageing population ratio, and the decline in absolute population means that there is no way to boost Japanese economy in a sustainable manner.

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It is quite ironical that the country boasting the world’s second largest concentration of largest firms has been plagued by anemic growth for over two decades. There have been intermittent spurts of growth and perhaps a few more expectations of such; however in a summary the Japanese economy has not been able to get out of the rut it has got itself into.

The Abenomics as it is colloquially called was supposed to be a giant step in the direction of economic revival. In spite of the some economic reforms, even negative interest rate regime by the central bank, the huge amounts of cash reserves held by large Japanese conglomerates, the economic revival has not happened.

One can argue that the economic revival is impossible in Japan for one simple fact – the declining Japanese population and no plausible measure to stem it. Given the underlying cost and wage structure in the country, the Japan economy cannot grow on an export driven model despite the fall of Japanese yen. In fact the Japanese yen has appreciated given the overall global economic turmoil.

The only way to unshackle the Japanese economy has to be driven by domestic consumption. And there lies the challenge. The ageing population, lowering of the working population to ageing population ratio, and the decline in absolute population means that there is no way to boost Japanese economy in a sustainable manner - minor spurts notwithstanding.

The seemingly Trump like attitude towards immigrants is therefore expected to take a huge toll on the Japanese economy and may make the post-world war two miracle of the Japanese economy a onetime wonder. This is in contrast to China which has realized the perils of the one child policy and finally decided to bite the bullet in relaxing it across the country. And the reason for the continued success of United States – where unquestionably the argument of Warren Buffet in that the US babies born are having it best in all of US history seems axiomatically true

It is sometimes forgotten in our post-industrial and an AI plus robotics world that it is ultimately human beings that create innovation, produce goods and services and most importantly consume them. If we do not have consumption and a growth in consumption, then everything else is redundant. And until the Japanese policy makers get this message and are courageous to act upon it, we may see an inevitable decline of once mighty economy.


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