Japan's Stagnating Economy battling Debt Deflation and Depopulation Japan is very rich in terms of its highly developed economy. The country is positioned as third in terms of nominal GDP and fourth in purchasing power parity (PPP). Japan has also occupied the third place in automobile and electronic manufacturing industries and is also listed under the major innovative countries of the world. In the recent era, the main challenges and competition for Japan are China and South Korea.
But at 233 percent, Japan is known to have the highest ratio of debt to GDP among the world’s advanced economies.
Japan obviously is known for being stuck in a liquidity trap (where monetary policy is no longer effective because it is a self-fulfilling prophecy), and Japan suffers from deflation or a negative inflation rate. The core CPI (includes fresh food prices only) appears to be quite volatile, and from what I have read, this was caused by a postponed hike of consumption tax, in which simply the cost would have been passed onto the consumer. The non-core CPI, however, looks like a disaster, but there aren’t any “major worries,” according to Kudora of the Bank of Japan, which is being held down by lower energy prices.
Japan also suffers from a huge demographic problem.
I mean, Japan is old!
There are a million factors that go into economic growth in any given quarter, and those will come along and rise and fall and whatever, but Japan has an overwhelming factor that makes economic growth very difficult, and that’s the aging population.
Japan has the highest life expectancy in the world (the average person lives to 84 there) and one of the lowest fertility rates (less than 1.5 children per couple). They were one of the first countries in the world to have a below-replacement fertility rate (first hitting that point in 1959). And their current fertility is actually an improvement. Fertility got as low as 1.3 a couple of decades back,
As a result of all of this, a third of the population of Japan is over the age of 60. Adult diapers are now outselling baby diapers in the country, which has never happened in any country in history. That means that the working-age population is continually shrinking while having to care for an ever-increasing population of retirees. Japan tends to resist allowing more immigrants to bolster the workforce, so you have fewer and fewer workers trying to grow an economy with limited resources.
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