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Aoki Masahiko, a prominent Japanese economist, once predicted it would take 30 years for his country’s economy to emerge from the “lost decades” that began in the early 1990s. At that time, an asset bubble burst and the sun set on the model that had helped Japan grow rapidly. Though the country remained rich, it slid into deflation and its growth rate slowed. Aoki reckoned generational change would be necessary for a new model to coalesce. He started the clock at the moment the bubble had definitively burst and the long-time ruling party, the Liberal Democratic Party, first lost power: the year of 1993.
Fast forward to 2023 and Aoki’s words ring prophetic. The world’s third-largest economy is awakening from its decades-long torpor. After years of deflation or low inflation, Japan is seeing its fastest price growth in more than 30 years. Wages, long stagnant, are rising faster than at any time since the 1990s. Both increases are driven largely by global supply shocks. But they are not the only changes afoot. As Aoki predicted, gradual institutional and generational shifts are bearing fruit and changing Japan Inc from within.
Struggling to keep upimage: The Economist
This confluence of external shocks and internal evolution represents a chance for Japan to change its economic trajectory. The country’s share of global GDP in PPP terms has fallen from 9% in 1990 to under 4% today; its GDP per person in PPP terms slid from 81% of America’s level to 64% over the same period (see chart). Goldman Sachs, a bank, projects that Japan will drop out of the top five economies by 2050 and out of the top ten by 2075. A shrinking population limits the upsides to its growth. Even so, if Japan can reset inflation expectations, boost productivity and unleash corporate dynamism, its fall from the top league could perhaps be halted.
Investors are excited. Morgan Stanley, an investment bank, reckons Japan has “convincingly emerged from three decades of economic stagnation”. Warren Buffett has built up large holdings in five Japanese trading houses. Earlier this year, the benchmark Nikkei stock index hit its highest level since the bubble burst. “Japan is undergoing a series of extraordinary economic transformations,” gushed Larry Fink, the CEO of BlackRock, an asset-management firm, while in Tokyo in October.
The past 30 years have seen many false dawns in Japan. There are reasons for scepticism this time, too. Japan’s post-pandemic recovery remains fragile: after growing 4.5% year-on-year in the second quarter, GDP contracted by 2.1% in the third quarter, according to data released on November 15th. Wages have not kept pace with price increases. Consumption is flat. The yen’s depreciation led the International Monetary Fund to project that Japan’s nominal GDP in dollar terms will slip this year from third largest to fourth in the world, behind America, China and Germany.
Servicing Japan’s massive government debt is already a heavy burden. It will become more of one if the Bank of Japan (BoJ) moves away from its ultra-loose policy based on negative interest rates and yield-curve control, as it hints it may do next year. Many firms that rely on interest-free capital would struggle to stay solvent, too.
Japan’s workforce is still shrinking and ageing. Its firms continue to hoard cash. Over 40% of firms listed on Japan’s TOPIX 500 trade below book value, compared with under 5% on America’s S&P 500. Foreign-investor interest has as much to do with Japan’s relative stability and cheap currency as excitement about new growth.
Yet those familiar flaws obscure other developments. In recent decades “the fundamental problem of the Japanese economy was dynamism,” says Hoshi Takeo of the University of Tokyo. Too few new companies were formed, too many old ones hung around, prices barely changed and talent was trapped within firms for life. “Now we’re seeing that begin to change.”
Inflating hopesimage: The Economist
Start with prices. Headline annual inflation has been above the BoJ’s 2% target for 18 straight months. Even if much of that is due to higher import costs the psychology of price-setting is changing as a result. Firms have been forced to test the long-held assumption that pushing up prices would mean losing customers. “We came to understand we can raise prices,” says Niinami Takeshi, the CEO of Suntory, a big drinks maker, and the chair of Keizai Doyukai, an influential association of corporate executives. The practice has become widespread: prices for nearly 90% of items monitored by the BoJ are rising (see chart).
Demographic opportunity
Higher inflation has outsized implications for wages, which have stagnated for decades. Inflation of 1% in Japan produces wage growth of just 0.2%, but the sensitivity jumps when inflation exceeds 2%, reckons Ota Tomohiro of Goldman Sachs. Demographic change ought to provide another push. Though Japan’s population started shrinking more than a decade ago, women and old people entering the workforce largely offset the decline. But that trend has slowed in recent years, leaving employers feeling the crunch and needing to entice workers with higher pay. Though wage growth still lags price growth, if next year’s annual shunto wage negotiations produce big gains again, a long-awaited virtuous cycle of price and wage growth would be tantalisingly close.
Geopolitical turbulence, from war in Ukraine to tension between America, Japan’s security provider, and China, its largest trading partner, has also changed the landscape for Japan Inc. A growing number of executives recognise that “we can’t keep the status quo,” says Mr Niinami. As firms prioritise supply-chain resilience and worry about location risk, Japan stands to benefit. Even if manufacturers do not build factories in Japan, they may rely on its factory-automation firms to help build them elsewhere. America once perceived Japan as an economic rival, yet it now wants to see Japan thrive. American officials cheered as IBM, an American tech giant, entered into a joint venture with Japanese counterparts to design chips in Japan.
Japanese firms are poised to put their cash to use. The growth rate for planned capital investments is at its highest level since the BoJ began collecting survey data in 1983. The government is encouraging this trend: big subsidies have gone to the semiconductor industry; the government has pledged to spend 2trn yen ($13.2bn), or 0.3% of GDP, per year for the next decade to fuel the green transition. With defence spending set to rise substantially, officials want to spur defence-industrial-driven innovation of a kind that was formerly taboo.
Corporate-governance reforms that began over a decade ago have become entrenched. Pressure to enhance corporate value and return on equity no longer comes solely from foreign activists—Japanese institutional investors are also pushing. The pressure will increase. The government announced an “asset-doubling plan” that seeks to encourage Japanese savers to invest their cash holdings, with tax incentives set to come into effect next year. The JPX, which oversees the Tokyo Stock Exchange, is another force for change under its new president, Yamaji Hiromi. Beginning next year, the bourse plans to publish a list of firms that meet corporate-governance guidelines. Mr Yamaji says that when CEOs approach him at the golf club to grumble, he answers: “Good luck.”
These shifts have coincided with generational change in Japanese business. The average age of CEOs at firms in the Nikkei stock index has dropped by 12 years in a decade, according to Jesper Koll of Monex Group, a brokerage. Many are moving beyond old mores such as lifetime employment and seniority-based pay. Young Japanese are happy to switch jobs. The best and brightest increasingly join or start new firms. “We should be betting on these groups of people,” says Namba Tomoko, a vice-chair of Keidanren, a business group.
The startup ecosystem is small relative to Japan’s gDP, yet increasingly vibrant. “The old Japan is still there, but in parallel to that a new Japan coexists and grows,” says Kushida Kenji of the Carnegie Endowment for International Peace, an American think-tank. Investment in startups rose from 88bn yen in 2013 to 877bn yen in 2022; the number of Japanese venture-capital funds has quadrupled in that time.
Where many Japanese entrepreneurs were once content to be big in Japan, a new class of founders with global ambitions is rising. Shin Taejun, founder of Gojo, a microfinance firm, wants it to be “the World Bank of the private sector”. Maeda Yosuke, founder of Wota, which builds decentralised water-treatment infrastructure, aspires to “solve the global water crisis”. Rather than inheriting his family’s construction firm, he decided to build his own. “The old industrial structure can’t solve the problems we want to solve,” he says. Okada Nobu, founder of Astroscale, is leading global efforts to clean up debris in outer space. Japan needs new “champions”, Mr Okada says. “We still refer to Sony and Honda—let’s forget about them.”
This new generation also seeks to reshape corporate culture. Many young Japanese want to shed the post-war model based on lifetime employment, male domination and age-based hierarchies, says Takeshita Ryuichiro of Pivot, a media startup that focuses on the new Japan Inc. “Change used to be seen as negative or traitorous,” he says. “But we aim to portray pivot or change as positive.” In just over a year Pivot has racked up over 1m subscribers on YouTube, where it broadcasts interviews with founders, investors and inventors.
Many Japanese executives and policymakers seem not only to understand that Japan stands at a significant juncture; they are determined to make the most of it. “People who know Japan really well ask me, is this time different?” Mr Yamaji says. “My answer is it could be—we should make it be.” The opportunity may not present itself again soon. Unlike the sun, Japan’s chance to rise does not come every day. ■
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
