For decades, Japan’s economy has been plagued by deflation, stagnation, and a diminishing global influence. However, recent developments suggest that this is no longer the case. Between 1991 and 2021, Japan’s average annual inflation rate was a mere 0.35%. But since April 2022, inflation has exceeded 2% every month. In March, the Bank of Japan made the historic decision to raise interest rates for the first time in 17 years, signaling the end of the world’s last experiment with negative interest rates. The BoJ may consider further rate hikes at its upcoming meeting at the end of this month.
The Nikkei stock index recently surpassed its bubble-era high in February, while the broader Topix index reached its highest level since 1990 last week. It appears that Japan’s lost decades are finally coming to an end. The question now is, what comes next for Japan?
Pessimists argue that despite these positive signs, Japan still faces significant challenges. They warn that the country’s aging population and high public debt will continue to weigh heavily on its economy. Additionally, there are concerns about rising tensions with neighboring countries and a potential economic slowdown in China.
Optimists believe that Japan is poised for a resurgence. They argue that Japan is truly back this time, with a revitalized economy. With higher inflation and more dynamic companies, Japan is expected to enter a new phase of growth, which will help the country manage its public debt and maintain its status as one of the world’s leading economies. Japan has also emerged as a favored destination for high-tech companies looking to strengthen their supply chains. Taiwanese semiconductor giant TSMC, for example, is investing billions of dollars in new manufacturing facilities in Japan.
As Japan continues on this path towards economic recovery and growth, it remains to be seen what challenges it will face along the way and how it will navigate them effectively
