The infographic above is inspired from the article Why the Entire World is Heading For Negative Interest Rates which explains the issues Japan has been facing for the last three decades and how other countries are on similar trajectory (called ‘Japanification’).
There have been growing concerns amongst analysts and investors alike over fears of a global economic stagnation similar to that experienced in Japan over the last three decades or so. The world economy is seemingly succumbing slowly to ‘Japanification’.
Over the last three decades the Japanese economy had been characterized by a persistent low inflation and a feeble economic growth. Globally, Japan has had a higher percentage of the aging population that is above 65 years leading to falling productivity as the labor force growth rates decline. The Japanese economy suffered little to no GDP growth with an increasing debt-to-GDP rates. As a result, the Central Bank of Japan had to lower the interest rates to below 0% thereby discouraging people from saving money in the banks and instead encourage to spend to help generate economic activity. Following decades of low productivity, while running out of options to enhance economic growth, Japanese people have had to endure the effects of negative interest rates. As other countries continue to become like Japan, investors and analysts are concerned of the threat this poses to the global economy. The term ‘Japanification’ is adopted here describing how Japan has been, for close to three decades, crippled by deflation and slow growth. Our article Doraemon Economics further explains these issues in a different way.
Symptoms in Other Parts
Trends have shown some of the ‘symptoms’ of ‘Japanification’ being experienced in other parts of the world. These include the falling demographics, excessive money printing as well as stimulus by the central banks. For instance, countries such as Denmark, Switzerland, and Sweden have shown to be following Japan’s footsteps through introduction of negative deposit rates mainly due to the low birth rates in these countries. With China’s population set to hit its peak in 2029, the economy will experience the full effect of ‘Japanification’, should the global trend keep up. This is mainly a result of the 1970s one-child policy introduced by the Chinese government. Recent trends have also shown the UK, USA and Australia having reduced their interest rates in the range 0% to 0.25%. Economies that have an above average growth rate as well as high government spending, are most likely implementing policies that are market friendly in efforts to compensate for high taxes and expenditures.
Arguably, Japan has also attracted economic attributes such as long-term investment making the economy an attractive example amongst policymakers in economies already experiencing low growth and prolonged low rates globally. However, the threat of ‘Japanification’ remains a worrying concern as the developed world seems to have taken up the Japanese culture of low growth and inflation and loose policy. Particularly now that the global economy is faced with an economic crisis due to the COVID-19 pandemic. Crisis policies such as substantial fiscal stimulus have become a necessity to survive the economic crisis. However, if maintained for longer periods, these policies tend to promote deflation and low growth which may result in global ‘Japanification’.