Will Japan de-”Japanize”?

The so-called ‘Japanization’ was for a long time a big worry among economists within and without the Asian island nation, as populations all over the world were aging and debt levels were rising.

After the COVID-19 pandemic and other factors, however, led to global, skyrocketing inflation rates, that narrative has shifted: Now, most economists fear that inflation will become structural in many countries.

In Japan itself, however, inflation is not a big worry.

“Inflation is not so much a fear as a hope, and we see signs that Japan is in fact achieving sustained inflation,” says Glistrup.

In March, after eight years of negative rates, the Bank of Japan (BoJ) made the historic pivot away from its previous policy to focus on growth and reacceleration and delivered its first hike in 17 years.

Simultaneously, Japanese unions have negotiated unprecedented wage increases with some of the largest employers of the country.

For one, Toyota agreed to fully meet union demands in wage negotiations. This agreement marked the largest wage increase in 25 years.

“In addition to surveys, we are beginning to see hard signs that Japan is coming out of the ‘expectations trap’ which they have been caught in due to continuously falling prices,” Glistrup says.

He elaborates; “Incentives for saving have diminished with the return of inflation, and the household savings ratio has nosedived since the onset of the pandemic.” 

Ultimately, Glistrup sees reason for moderate positivity, but he remains careful:

“While governance initiatives and the possible–yet not certain or quick–return to normalcy bodes well for continued Japanese performance longer term, we currently see price action leaping ahead leaving a poorly skewed r/r currently. Japan can hardly surprise markets positively as it can negatively at this juncture.”