The other day, the Japanese government announced that its economy there expanded at a 5.4% annual rate during 4Q21.
The last year Japan came close to reaching that level was1988, thirty-four years ago. During the current century, 1.5% economic growth as been about the best the Land of the Rising Sun has been able to do–even after a mammoth devaluation of the currency aimed a keeping export-oriented manufacturing competitive.
We all know the reasons: an aging (in Japan’s case, shrinking) workforce; a strong bias against allowing immigrant workers into the country; political gridlock; immense government support/protection for industries of the 1980s, like autos, chemicals, or machine tools. And, of course, Tokyo initially bungled its handling of covid.
Sort of like the Ghost of Christmas Future for Europe and the US.
What I find new–and striking–about this situation is that no one in the Japanese press is writing or saying that the country is on the cusp of runaway inflation. Quite the contrary. What I’ve been reading is a litany of reasons why this strength is likely to fade relatively quickly. Way different from the US, where the media consensus is that the inflationary death spiral of the late 1970s is upon us.
How so? One reason is that Japanese journalists have far greater economic knowledge and experience than their US counterparts, in part because their main task is to inform rather than entertain. Another is that the population of Japan is ten years or so older than Western Europe’s, which is something like a decade older than us in the US. And not only are we younger, we only slapped on import tariffs and closed the borders–halving the potential GDP growth rate, in so doing–a couple of years ago. So we have seen economic expansions and can conceive of the economy spiraling out of control to the upside, even though you’d have to be 60+ to have lived through the late Seventies as an adult. For Japan, in contrast, there’s been almost nothing but stagnation for 30+ years. So it’s easier to imagine that any whiff of growth–much less +5.4%–is only transitory.
So Japan says the boost to growth for them is already beginning to fade. The US consensus, I think, is that any gearing down in inflation is a 2023 affair. Why not split the difference and figure we’ll see some evidence of a return to 3%-ish inflation around the Fourth of July?