Opinion National Interest PoV 50-Word Edit

ThePrint On Camera Videos In Pictures

Society & Culture Around Town Book Excerpts Vigyapanti The Dating Story

More Judiciary Education YourTurn Work With Us Campus Voice

Opinion National Interest PoV 50-Word Edit

ThePrint On Camera Videos In Pictures

Society & Culture Around Town Book Excerpts Vigyapanti The Dating Story

More Judiciary Education YourTurn Work With Us Campus Voice

Japan is doing everything ‘wrong’ with its economy. And, it’s working

Japan’s experience should be viewed not as an anomaly but as a precursor. It illustrates that an economy can maintain resilience even as growth moderates.

Japan should technically be in trouble if every conventional economic rule is taken into account. The nation is experiencing growth of less than 1 per cent, a declining population, an ageing workforce, and a public debt level that ranks among the highest globally. In textbook macroeconomic theory, such a combination typically signals stagnation, inflationary pressures, or worse.

However, Japan today presents an economy characterised by near-full employment, increasing wages, and a stable domestic demand—a scenario that not only defies expectations but also subtly questions the foundational assumptions of these expectations.

The most compelling evidence of this challenge to conventional rules is found in Japan’s labour market, where the divergence between theory and reality is most pronounced at this point. The International Monetary Fund (IMF), in its latest Article IV consultation, observes that labour shortages have reached their highest level since the early 1990s, with firms across various sectors struggling to recruit workers. 

Unemployment remains close to 2.5 per cent, while wage growth has attained multi-decade highs. Within any standard analytical framework, such a labour market would typically be expected to lead to overheating, rendering Japan an intriguing subject for economic analysis.

A labour market that refuses to overheat

If a labour market is characterised by such tight conditions, one would anticipate inflationary pressures to emerge, suggesting that Japan should be experiencing persistent economic overheating. This expectation is grounded in the Phillips Curve, which explains........

© ThePrint