By Hiroshi Yoshikawa / Special to The Yomiuri Shimbun

11:00 JST, September 5, 2025

Japan’s ruling parties, the Liberal Democratic Party and Komeito, suffered a crushing defeat in July’s House of Councillors election, losing their majority in the upper house as they lost their majority in the House of Representatives last October. On the other hand, some emerging parties made remarkable gains. Call it voters’ judgment on the course of Japan’s economy and society during the 30 years or so after the collapse of the bubble economy. The country’s future is not looking good.

The biggest issue in the upper house election was rising prices. The real problem here is the prolonged stagnation of the Japanese economy.

About 40 years ago, when it was said that the country’s rapid growth would lead to “Japan as No. 1,” the economy was enjoying a bubble, but that burst in the 1990s. Even in 2000, Japan’s nominal gross domestic product per capita — a measure of national strength — was the second highest in the world, behind only Luxembourg. However, Japan then slid down the global rankings, until it was in 38th place by 2024. This is a per capita comparison, so the drop has nothing to do with the country’s shrinking population.

Deflation was to blame for the economic nosedive, many economics professors and economists said. In fact, the government has touted a policy of “breaking with deflation” for many years now. For its part, the Bank of Japan introduced an “extraordinary” monetary easing policy in 2013 to combat deflation, and kept that policy in place for more than 10 years.

But it must be said that deflation is not the true cause of the lingering stagnation.

There are two types of deflation. One is “malign deflation,” in which prices fall by half or more in a few years. This is the kind of deflation seen during the Great Depression in the 1930s. The other kind is “benign deflation,” which is what Japan has experienced since the end of the 20th century. The first sort is a major threat to a capitalist economy, while the latter is not.

Looking back at history, inflation often occurred when the real economy, including production and employment, was booming and deflation often occurred during a recession. However, there were exceptions. The most notable was the........

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