Tokyo stock market Anadolu Agency/Getty Images

Japan’s Economic Quandary

The Japanese economy is a paradoxical mixture of prosperity and failure. And, in a significant way, its prosperity makes its failures – beginning with its outsize budget deficit and government debt – difficult to address.

CAMBRIDGE – The Japanese economy is a paradoxical mixture of prosperity and failure. And, in a significant way, its prosperity makes its failures difficult to address.

Japan’s affluence is palpable to anyone who visits Tokyo. The standard of living is high, with per capita income in 2015 (in terms of purchasing power parity) amounting to $38,000, close to the $41,000 average in France and Britain. The unemployment rate, at 3.3%, is substantially lower than the US rate of 5% and the eurozone rate of about 10%.

But Japan’s economy has now slipped into deflation, with consumer prices lower in March than a year ago, while real GDP is declining. Despite near-zero borrowing costs, the fiscal deficit is running at nearly 7% of GDP, and government debt exceeds 230% of GDP. The population and the labor force are shrinking, implying even higher debt ratios in the future.

To continue reading, please log in or enter your email address.

To continue reading, please log in or register now. After entering your email, you'll have access to two free articles every month. For unlimited access to Project Syndicate, subscribe now.

required

By proceeding, you are agreeing to our Terms and Conditions.

Log in

http://prosyn.org/th52XTr;

Handpicked to read next

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.