The nation that once enthralled the world with its economic miracle is now faced with an overwhelming obstacle: a declining population that jeopardizes its creativity, growth, and very way of life.
The economic eclipse that Japan is experiencing is more than just a metaphor; it is a hard reality that the country must face as it attempts to balance its goals of expansion and global influence with its declining population.
In a remarkable two-decade span from 1955 to 1975, Japan’s economy experienced a phenomenal explosion, growing a staggering 435%! This meteoric rise, dubbed the “Japanese Miracle,” catapulted the nation from obscurity to global prominence, transforming it into the world’s most productive and innovative powerhouse, second only to the United States in economic might. In a breathtaking burst of growth, Japan emerged as a titan of industry, technology, and trade, leaving the world in awe of its sudden and extraordinary ascendance.
By the 1980s, the term “made in Japan” was no longer associated with inexpensive novelty items but rather with superior and cutting-edge goods. Brands such as Sony, Toyota, and Nissan became well-known. Eight of the biggest banks were all Japanese-owned during the height of the Japanese economic boom. Japan’s economic might reached unimaginable heights by the end of the 1980s, and the world could sense its success.
But on the fateful first day of 1990, the bubble burst, and the doubts that had been lingering beneath the surface of Japan’s economic miracle began to spread like wildfire.
Share prices plummeted, triggering a devastating free fall that would continue for two and a half years, wiping out a staggering 63% of their value. The consequences were catastrophic: millions of people lost their savings, their jobs, and their livelihoods. Companies and banks went bankrupt, leaving a trail of financial ruin in their wake. The impact was so profound that, to this day, Japan’s economy has never fully recovered from the shock. The reverberations of that crisis still linger, manifesting in a birth rate that has slowed to a crawl, a population that is aging at an alarming rate, and a young generation that is increasingly reluctant to take on the responsibilities of marriage and family, fearful of a future that seems as uncertain as the economy itself.
Now that we’ve glimpsed the stunning rise and fall of Japan’s economic miracle, and the devastating impact it had on the nation’s population, we’re ready to dive deeper into the details. In the following sections, we’ll dissect the factors that contributed to Japan’s economic boom and bust, examine the consequences of its population crisis, and explore the ways in which these two phenomena are intertwined.
Get ready for a nuanced and insightful exploration of Japan’s economic and population crises, and the lessons they hold for the world.
The Journey of Ascendancy: The Japanese Economic Miracle
In order to prove that capitalism could function outside of the West, the US needed a success story in Asia after World War II, so with that goal in mind, they planned to turn Japan into a massive export industry. In 1949, the US set the Japanese Yen extremely low compared to the US dollar, making Japanese goods inexpensive for US consumers.
At the time, the US believed that because Japan’s economy was so tiny, it could absorb all of its imports. However, they were unaware that artificially lowering the price of Japanese goods would have unintended consequences.
Following the end of American occupation in 1952, Japan went through a period of exponential expansion, with average annual growth rates of 10% for 20 years, until the early 1970s. This was made possible by their highly motivated and cost-effective labor force, as well as by heavy industrialization programs and the emergence of the “Keiretsu” system. Since the second part of the 20th century, a group of corporations known as Keiretsu have dominated the Japanese economy through interconnected commercial relationships and holdings. This method is designed to assist businesses. For instance, if one business is having trouble, others can assist them; if another business needs assistance, others will step in and provide a hand. The post-war Japanese economy was built around this framework.
A significant role was also played by the Japanese central bank, which established a policy known as “Windows guidance.” This policy, which is not as technical as it sounds, essentially encouraged commercial banks to lend money to important industries such as shipbuilding, electric power, coal, and steel manufacture. By doing this, they hoped to increase investment, boost output, and blow up the economy—all of which were essential to Japan’s economic growth.
Japan became a market leader in exports, utilizing the whole market as their playground. The Tokyo Olympics of 1964 offered the ideal stage for showcasing this new, energetic, and resurgent Japan to the world.
1980s: Pinnacle of Japanese Miracle
The Japanese economy reached its zenith in the 1980s. They had already made a name for themselves as global economic titans by that point, and their influence could be felt everywhere in the world economy. Since the 1970s, their trade surplus has increased to previously unheard-of levels several times.
Due to an increase in oil prices, the nation experienced a brief deficit in the 1980s, but by 1986, its surplus had reached a record-breaking 82.7 billion dollars.
As I have stated, the US will come to regret its choice to assist Japan, and that regret is already beginning. The Japanese manufacturers were so prosperous that they were flooding the US market with cars, TVs, motorcycles, and cameras.
At this point, the United States needed to take action to prevent Japan from assuming global dominance.
Rise of Inflection: The Plaza Accord
Even before Japan’s trade surplus of record in 1986, a strategy to slow them down had been established. The New York Plaza Hotel hosted a meeting in 1985 between officials from the G5 countries, which are France, Germany, the United States, the United Kingdom, and Japan.
The high currency at the beginning of the 1980s hindered US imports and contributed to the widening trade deficit.
The Plaza Accord’s primary goal is to lower the US dollar against the Japanese yen.
At last, Japan capitulated and agreed to increase the value of the yen, thereby imposing a self-imposed handicap on its exporters. The basic idea was to depreciate the dollar and increase the value of the yen, which would have increased the cost of Japanese exports to the United States.
But why would Japan take such an offensive against its own exporters?
There were several ways to respond to this query.
External pressure: Japan was under pressure from the US and other countries to reduce its trade surplus and appreciate its currency because they believed that doing so would be unfair and detrimental to the world economy. Japan consented to the agreement in part to maintain good relations with the United States.
Internal pressure: To take advantage of lower input prices and so strengthen their currency and lower the cost of their imported goods, domestic companies and consumers in Japan pushed for a stronger yen.
Economic strategy: It was thought that a strong yen would encourage innovation and structural transformation in Japan, boosting its long-term resilience and economic competitiveness.
By 1987, the pact had fulfilled its primary objective, and the US was happy with the outcome. However, there was a problem: the yen’s value in Japan had increased far faster than expected. With so many industries focused on exports, Japan was taken aback.
The Downfall: The Start of Japan’s Economic Slumber
The cost of land in the private sector had increased to 2,000 trillion yen by 1989, from 14.2 trillion yen in 1969, and that was when the higher authorities began to take notice.
The interest rates on loans tied to real estate were ultimately capped in 1989. Interest rates increased from 2.6% to 4.25% by the end of the year, before stabilizing at 6% in 1990. However, by then, the damage had been done, as panic and a drop in land asset prices had resulted.
There was much collateral damage. The stock market fell 32% in 1990 alone, wiping out more than 2 trillion US dollars in value by December 1990. Then, in July 1991, the window guidance was abandoned, leaving bankers virtually helpless. Some major banks began to fail as well. There was a risk that these events would bring down entire sectors with them.
What Happen Between 1990-2003
From 1990 to 2003 a total of 212,000 companies declared bankruptcy, and five million Japanese workers lost their jobs and, regrettably, were unable to find new ones. Among men aged 20 to 44, suicide became the leading cause of mortality. During this period, the stock market fell 80 percent and hasn’t recovered yet..
The Era of Shattered Confidence
The people who constructed those ostentatious skyscrapers ended up on the streets, and Japanese civilians had no choice but to adjust to the new normal. Large corporations who overspent on fine art were forced to liquidate it all. Convicted of fraud, builders who built opulent golf courses and hotels with borrowed funds even had to return the Rockefeller Center to the American people.
Only Toyota, a Japanese firm, is still among the top 50 global companies by market capitalization now, compared to 32 Japanese companies in 1989.
This is just one example of how Japan’s rigid system and bureaucracy ultimately held it back. You have to be shocked to learn that the country that produced the world’s advanced electronics, Japan, which was once thought to be the most technologically advanced nation, was slow to adopt computers in its own offices. The country’s excuse for this was the complexity of adapting software to the Japanese language,which has thousands of characters.
The Quiet Struggles: A Generation Lost
The younger generation, who were just about to enter the workforce, was the most severely affected demographic. Young people in many Asian nations are under tremendous pressure to contribute to society from an early age. This is common in Japan as well; it means getting good grades, landing a good career, and leading a decent family life.
Since many young people felt that the traditional paths of education, careers, marriage, and families were out of reach, consider all of the young people who suddenly saw no future for themselves. This has led to a rise in the rates of social withdrawal, with some individuals becoming Hikikomori, a Japanese term for social withdrawal. The pressure to succeed, combined with a lack of opportunities in the last decade, created a sense of hopelessness among the young.
Hikikomoris, a phenomenon of individuals who have withdrawn from society, confining themselves to a life of solitude and isolation. They spend their days, weeks, months, and even years holed up in their rooms, devoid of human interaction, and often without even a glimpse of sunlight. This extreme form of social withdrawal is a shocking reality, where the outside world is merely a distant memory, and the only companion is the eerie silence of their own four walls. The Hikikimoris have succumbed to a life of loneliness, disconnection, and stagnation, raising questions about the consequences of a society that has lost touch with its people.
For example: Kenji, a 25-year-old man, became a hikikomori after failing his university entrance exams. He has been isolated for three years, and his parents are struggling to support him.
Effects of Hikikomories on Birth Rate and on Economy
In Japan, hikikomori has a big impact on the economy and the birth rate. The problem leads to a decrease in the birth rate since many hikikomori people put off getting married or decide not to start a family at all. Japan’s already decreasing birth rate is made worse by this demographic trend, which will make it more difficult in the long run to support an elderly population and the workforce. There are less young adults starting families and raising kids, which means there are less future taxpayers and economic contributors to sustain social safety programs.
Hikikomori people are economically significant because they represent a loss of human capital and potential productivity; many of them leave the workforce entirely, which lowers labor force participation rates overall and potential economic output; this leave-taking affects not only productivity levels immediately but also long-term innovation and economic growth; additionally, the financial burdens placed on their families often divert resources that could be used to boost consumption and investment in the economy.
Japan’s economic problems are made worse by the combination of declining economic activity brought on by hikikomori and demographic stagnation, especially in the face of increased global competitiveness and technological improvements. Social programs that assist in reintegrating hikikomori into society, offering job training, and raising mental health awareness are some of the measures taken to lessen these consequences. Fostering a more diverse and economically active community in Japan requires addressing the underlying causes, which include social pressures and economic concerns.
Slow Growth, Aging Population and Birth Rate Decline
Japan’s path has been molded in recent decades by a complex web of economic and demographic difficulties. Its rapidly aging population is the main issue; this is a result of both falling birth rates and longer life expectancies. The current demographic change in Japan is that over one-third of the population is over 65, presenting significant social and economic concerns.
Japan’s healthcare system, pension funds, and social security institutions are severely strained by the country’s aging population. The workforce is becoming smaller than the number of retirees, raising concerns about how to sustain economic development and productivity. This problem is made worse by the declining birth rate, which is a result of cultural trends that encourage later marriages, financial constraints that discourage having larger families, and a lack of adequate assistance for working parents.
Despite being one of the greatest economies in the world, Japan has experienced periods of economic stagnation and slow growth. Constant deflationary pressures have made it difficult for businesses to invest and for consumers to spend, and structural inefficiencies in important industries like retail and agriculture continue to negatively impact the performance of the economy as a whole. The nation’s high public debt-to-GDP ratio makes it more difficult for the government to use conventional fiscal policies to spur growth.
Japan’s labor market is beset by issues such as an aging labor population and a mismatch between the skills businesses are looking for and the capabilities that job seekers, especially younger ones, possess. While lifelong employment and seniority-based remuneration were formerly considered stable employment practices, they now stand in the way of innovation and flexibility that are essential in today’s market.
It will take persistent work and creative solutions to address these interconnected problems, which include increasing birth rates, assisting families, changing labor laws, and reviving economic growth. Although the Japanese government has launched a number of projects, the road ahead is still difficult and will need to be carefully navigated in order to guarantee long-term answers.
Several Steps Taken by Government of Japan to Over Come Birth Rate Issue
Japan’s birthrate has been dropping, and the country’s government is making efforts to reverse this trend. Prime Minister Fumio Kishida declared that Japan would not be able to continue operating as a nation if it does not address its dropping birth rate. Now government is taking the following actions to address the problem:
Extra Financial Assistance for Families: The Japanese government is providing families with extra financial aid, which includes subsidies for child rearing and schooling. These policies are intended to encourage families to have more children while also easing the financial strain of raising a family.
Pay Increase for Younger Workers: Japan is thinking of raising younger workers’ salaries to encourage marriage and parenting. The goal of this action is to improve the stability of the environment for beginning families and raising kids.
Initiatives for Gender Equality: The government is attempting to alter societal perceptions on gender roles. They intend to provide an atmosphere where families can prosper by advocating for more gender equality at work and at home.
Promoting Paternity Leave: To encourage male employees to take paternity leave, the Japanese government is giving businesses more financial support. This action promotes working fathers and tackles the problem of work-life balance.
New government agency: In April, a new government agency will be established to address the issue of dropping birth rates.
Budget increase: By June, plans are in place to treble the amount allocated to child-related measures.
Educational environment: The government is working to make schools better for kids by supporting an educational environment that is centered on the neighborhood.
These initiatives are essential since Japan’s population has been falling for the past 15 years, and estimates show that it will drop even more, to 86.7 million by the year 2060. The government understands the gravity of the situation and is working to buck the trend by encouraging people to pursue happiness through family life.
Summary
Japan’s late 20th-century economic history is a depressing tale of quick rise and sharp decline. Over the course of the prosperous 1980s, reckless goals and excessive speculation propelled Japan’s unparalleled economic expansion. But by the early 1990s, the bubble burst, sending the country into a deep recession that would linger for years. This wealth was not sustainable. Even with the dire situation, Japan resisted giving in. The nation started a recovery journey that demonstrated its tenacity, drawing on its well-known work ethic and resilience.
Japan’s economy is currently the fourth largest in the world, demonstrating its capacity to recover from economic disaster. The world community is starkly reminded by the lessons learned from Japan’s economic eclipse that, while unchecked expansion can lead to disaster, even the most difficult economic obstacles can be conquered with resiliency, diligence, and unflinching perseverance.
However, Japan’s economic eclipse is not without its ongoing challenges. The nation’s low birth rate and aging population pose significant threats to its economic future, potentially exacerbating labor shortages, increasing the burden on social security, and straining healthcare resources. To secure a brighter future, Japan must urgently address these demographic challenges and implement effective strategies to boost its birth rate and harness the potential of its aging population. By doing so, Japan can overcome these hurdles and continue to thrive as a global economic powerhouse.
