History of Japan Newsletter, 10/27/23 Edition

Welcome, all, to another newsletter; let's dive into it!

Japan in the News: Japan as Number...Three?

The news out of Tokyo this week is depressing but not unexpected; the International Monetary Fund has announced a forecast that Japan's nominal Gross Domestic Product will be overtaken by that of Germany before the end of the year. Specifically, by the end of the year the IMF estimates Germany's nominal GDP (the finished value of all goods and services generated in an economy, without adjusting for inflation or local cost of living) will be at 4.43 trillion USD by the end of 2023, with Japan's totalling 4.23 trillion.

Now, on the one hand, this news is neither unsurprising--Japan has been having economic ups and downs for three decades at this point, after all--nor necessarily that meaningful. In general, applying GDP figures consistently is tricky, which is why there are so many different ways to calculate it (e.g. this nominal approach versus adjusting for purchasing power parity using the US as a benchmark). And of course, this is a forecast (though a short term one). In addition, part of the issue is a fundamental difference in monetary policy. Japan's nominal GDP is following specifically because of the issue of purchasing power, and in particular because the Bank of Japan is taking a very different financial position to other central banks.

In Europe and the US, central banks (like the Federal Reserve) lowered interest rates for borrowing money substantially during the pandemic in order to boost local economies. This worked, but produced inflation--which banks have dealt with by raising interest rates (increasing prices across the board as a result, which is why things are generally getting more expensive). Japan, however, has refused to do this; the BOJ has not moved interest rates overmuch, particularly compared to Europe and the US.  It's still looking likely rates won't go up until next year at the earliest, as other cost of living concerns (particularly spiking energy prices) means there's not a lot of appetite for more changes that will make life more expensive. The Bank of Japan is trying other measures in the interim to keep inflation down.

Still, the shift this represents is not entirely illusory. Germany's GDP per capita is increasing as wlel ($52,824, vs $33950 in Japan), and of course Japan's economic growth in recent decades has been uneven to say the least. The PM's office has responded to this news with a variety of new initiatives intended to deal with cost of living issues and bolster the economy (including tax breaks to make sure wages continue to grow), but one wonders how successful these will be going forward or how sustainable they are. 

And of course, all of this is a far cry from 30 years ago, when Japan was the world's second largest economy and there was genuine talk that it could become the world's largest.  Those days appear to be long gone--and today's news is one more example of just how different times now are.

What's coming up on the podcast?

After this week, we'll be up to the establishment of Kyoto as the imperial capital in the Revised History of Japan. We'll then take two weeks to lateral into some cultural discussion; next week is going to be all about the Japanese language and Japanese Buddhism, and the week after is going to be the classical literature of Heian Japan.