Will it keep losing decades?

Executive Summary

The Japanese economy, once the envy of the world, has been struggling to escape the doldrums ever since its “Lost Decade” of the 1990s. Prime Minister Shinzo Abe swept into office in 2012 on promises to revive the economy through a policy that relied on three “arrows”: expansive monetary policy, fiscal stimulus and structural reform. Progress has been slow, but two years of steady growth have revived hopes that Abenomics may finally be bearing fruit. Domestic consumption is increasing, unemployment is the lowest in 23 years and inflation is starting to rise slightly. Yet many economists remain skeptical, pointing to massive government debt and Abe’s lack of progress in pushing through reforms to modernize the country’s labor market and corporate structure.

Some key takeaways:

  • Japan’s economic growth averaged just 1.18 percent annually over the past 28 years, during which the nation slipped from second to third place among the world’s largest economies.

  • One of Japan’s key economic problems is a shrinking and increasingly elderly population, which causes labor shortages and increases pressure on public finances.

  • Amid the recent economic growth, the mood of Japanese business owners is brightening. In a recent Bank of Japan survey, they expressed high levels of confidence and foresaw the need for higher production and employment.

  • Click here to listen to an interview with author Rachel Premack or click here for the transcript.

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Resources for Further Study



Koo, Richard, “The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession,” Wiley, 2008. The chief economist at the Nomura Research Institute in Tokyo compares the United States’ Great Depression in the 1930s and Japan’s ongoing “Lost Decades.” He proposes models to explain why post-bubble economies are unresponsive to conventional policies.

Pesek, William, “Japanization: What the World Can Learn from Japan’s Lost Decades,” John Wiley & Sons, 2014. A Tokyo-based columnist for Bloomberg Views argues that Japan’s timid policies and lack of innovation held back economic recovery.


“The Bank of Japan sticks to its guns,” The Economist, Sept. 30, 2017, http://tinyurl.com/ycnzoqv9. Despite questionable results, Japan has continued to rely on Abenomics to attempt to boost its flagging economy.

“The Japanese government’s drive to lift wages is gathering steam,” The Economist, Feb. 1, 2018, http://tinyurl.com/yb96o2s7. Prime Minister Shinzo Abe called for employers to give 3 percent pay increases in 2018. Economists are forecasting just 2.3 percent to 2.5 percent – but that is still significantly higher than Japanese have seen the past few decades.

Kikuchi, Tomomi, “Japan GDP grows for 8th straight quarter in longest streak for 28 years,” Nikkei Asian Review, Feb. 14, 2018, http://tinyurl.com/yaxpgrfq. Increases in private consumption and capital expenditures have enabled economic growth for the eighth straight quarter in Japan.

Kubota, Yoko, “How Foreign Workers in Japan Are Helping—and Hurting—the Economy,” The Wall Street Journal, Oct. 25, 2017, http://tinyurl.com/y74g5z5w. Japanese companies are starting to recruit foreign workers, particularly for low-skilled jobs.

Mollman, Steve, “Japan’s Government Offered Companies Money to Promote Women—and Not One Took It,” The Atlantic, Oct. 3, 2015, http://tinyurl.com/ya98xgea. Japanese companies have been slow to add women to their leadership boards despite government incentives. Japan has one of the largest gender wage gaps among members of the Organisation for Economic Co-operation and Development.

Tabuchi, Hiroko, “When Consumers Cut Back: An Object Lesson From Japan,” The New York Times, Feb. 21, 2009, http://tinyurl.com/arsojg. Japanese consumers’ thrifty ways, even in relatively good times, offer a cautionary tale to struggling economies in the midst of a global recession.

Taylor, Adam, “It’s official: Japan’s population is dramatically shrinking,” The Washington Post, Feb. 26, 2016, http://tinyurl.com/yccrbcwd. Japan’s population has been dropping and is projected to sink below 100 million by the middle of the 21st century.

Reports and Studies

Desvaux, Georges, et al., “The Future of Japan: Reigniting Productivity and Growth,” McKinsey Global Institute, March 2015, http://tinyurl.com/yd6jlu2sx. Productivity growth has declined in nearly every sector of Japan’s once ultra-competitive economy. Yet with a shrinking population, higher productivity is necessary for Japan’s economy to grow, the global consulting firm concludes.

Jorgenson, Dale, and Koji Nomura, “The Industry Origins of the U.S.-Japan Productivity Gap,” Economic Systems Research, 2007, pp. 315–412, http://tinyurl.com/y8b6trt9. The productivity gap between Japan and other highly developed countries, particularly the United States, has long baffled economists. These authors argue that the United States’ fast adoption of IT in the 1990s and Japan’s slower embrace of it accounts for some of the gap.

The Next Step

Gender Divide

Pesek, William, “Finally, Japan’s push for female empowerment is being led by a woman,” Quartz, Oct. 21, 2017, https://tinyurl.com/y92qbskn. Tokyo’s female governor, Yuriko Koike, is seeking to improve the economic lives of Japanese women and is becoming a much-needed and powerful role model, says a Tokyo-based journalist.

Tanaka, Chisato, “U.N. regional director praises Japan’s efforts to empower women, but notes that few are reaching the top,” The Japan Times, March 8, 2018, https://tinyurl.com/yc4zzmfu. While more women have been joining Japan’s workforce in recent years, not enough women are in leadership roles, says the United Nations Women’s Asia-Pacific regional director.

Vlisides, Victoria, “‘Deepen the Dialogue’ Initiative Targets Japan’s Gender Inequality,” Savvy Tokyo, March. 28, 2018, https://tinyurl.com/y8dl6b9j. A journalist profiles Deepen the Dialogue, a Tokyo-based movement dedicated to fighting gender inequality in the workplace by hosting educational workshops with men and women from several companies.

Labor Shortage

Chandran, Nyshka, “Foreigners could ease Japan’s labor shortage, but Tokyo prefers robots,” CNBC, March 9, 2018, https://tinyurl.com/yb7g2ssr. Japan’s government is keeping a tight rein on immigration, despite the country’s shrinking population and acute labor shortage.

Fujikawa, Megumi, “Japan’s Jobless Rate at Quarter-Century Low,” The Wall Street Journal, March 1, 2018, https://tinyurl.com/y9lbdzxf. The jobless rate in Japan fell in January to its lowest point since 1993, while the number of job openings was at a 44-year high.

Saito, Mari, “Japan Wants More Women in Construction. Pink Toilets May Not Be Helping,” The New York Times, March 8, 2018, https://tinyurl.com/y8efhr5y. Government efforts to boost female employment in industries struggling with labor shortages, such as construction, have been minimal, misguided and at times misogynistic, a journalist writes.


Bank of Japan
2-1-1 Nihonbashi-Hongokucho, Chuo-ku, Tokyo 103-0021, Japan
Japan’s central bank, which is responsible for enacting monetary policy and conducting economic surveys.

German Institute for Japanese Studies
Jochi Kioizaka Bldg., 2F, 7-1 Kioicho Chiyoda-ku, Tokyo 102-0094
A German research institute dedicated to understanding modern Japanese society and international relations.

International Monetary Fund
700 19th St., N.W., Washington, DC 20431
An international financial organization with 189 member countries, founded in 1944 to maintain global economic stability.

Japan Economic Research Institute
Otemachi Financial City Grand Cube 15F 1-9-2 Otemachi, Chiyoda-ku, Tokyo, 100-0004
Think tank, whose parent organization is the Development Bank of Japan; conducts research for the private and public sectors.

Ministry of Economy, Trade and Industry
1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8901, Japan
The government agency responsible for advancing the Japanese economy through private-sector initiatives.

Organisation for Economic Co-operation and Development
1776 I St., N.W., Suite 450, Washington D.C. 20006
Intergovernmental economic organization with 35 member countries, founded in 1960 to promote world trade and the market economy.

Tokyo Foundation for Policy Research
Roppongi Grand Tower, 34F, 3-2-1 Roppongi, Minato-ku, Tokyo 106-6234
A think tank that engages in policy and human resource research as well as leadership development.

U.S.-Japan Research Institute
1901 Pennsylvania Ave., N.W., Suite 801, Washington, DC 20006
A research consortium of American and Japanese experts who study policy and human resources to advise the public and private sectors.

World Bank
1818 H St., N.W., Washington, DC 20433
An international financial institution with 189 member countries, dedicated to ending poverty and promoting prosperity.

DOI: 10.1177/237455680412.n1