Why Did Japan’s Economy Collapse
japan was once on its way to becoming the world’s
largest economy The country became Asia’s first advanced economy in an intensive reconstruction
drive after the devastation of the Second World War and has risen to become the world’s second
largest economy thanks to its legendary work ethic and technological advances This relatively small
group of islands had moved economically closer to the much larger and more populous United States
During Japan’s miracle growth period economic growth averaged 10% peranom throughout the 1960s
and remained above 5% until the 1980s In 1989 the country’s gross domestic product reached $3
trillion making it the world’s second largest economy behind the United States Even today movies
video games and cyberpunk genre content focus heavily on Japanese companies This is because
for a long time people believed that in the future high-tech Japanese companies would rule the
world But this prediction did not materialize and instead a handful of Californian tech companies
rose to prominence in the world economy The expected future never came Japan’s economy has
been in recession for almost four decades Far from being the world’s largest economy it has
recently lost its place on the podium to another postwar miracle In 2010 China overtook Japan to
become the world’s second largest economy in terms of gross domestic product Japan’s rise and fall
has shaped the careers of countless economists trying to figure out what exactly went wrong But
after all this time it may be more important to question whether it is really a problem at all The
Japanese still enjoy a very high quality of life Housing is affordable They have one of the highest
life expecties in the world And despite their reputation for overwork they currently work less
than many countries in the West According to 2023 data Japan ranks second highest in the world with
an average life expectancy of 84.3 years So how is it that despite Japan’s economic downturn its
people still enjoy a high quality of life How is it that they still manage to live happily and long
lives And most importantly can a country remain in its current stagnant state forever without
serious side effects In 1985 the United States France West Germany the United Kingdom and Japan
met in a luxurious 5,400 m hotel in New York to conclude a joint agreement called the Plaza Accord
which is aptly named While these agreements may seem friendly on the surface as world leaders
sat down for the ritual photo op the reality was that the US was increasingly worried about
growth with these competing nations especially Japan And in retrospect with good reason fearing
the manufacturing power coming from the east the US signed an agreement between these five
countries that would devalue its currency and make Japanese exports less competitive This
was a great deal for the US American consumers would no longer buy Japanese products which had
become more expensive As a result of the Plaza Accord the Japanese yen appreciated by about 50%
against the US dollar between 1985 and 1987 while $138 yen in 1985 This rate dropped to 123 yen
at the end of 1980 So why did export dependent Japan succumb to this unusual request The short
answer is because they are not stupid Japan knew that the deal would hurt their export oriented
economy But they also understood that a trade war with the US would cause even greater damage After
all the US was providing food for Japan’s growing population while offering resources to increase
production Japan used these needs to produce affordable consumer technology products To put
it bluntly Japan had only two options potential starvation and recession or a manageable exchange
rate shift Paradoxically the same factors that made Japan successful also explain its current
stagnation Apart from the boom that preceded the Asian financial crisis Japanese society had a long
history of risk aversion which is not necessarily a bad thing Many countries do the opposite and pay
the price But what makes them uniquely Japanese is the reason why they chose not to take risks in
the first place To put it mildly the country has a reputation for excellence to the extent that it
has become a widely accepted stereotype In most of its applications be it food or the countless
katana swordmaking videos on YouTube A significant proportion of the country’s people spend years
specializing in niche areas to provide the best possible product or service And the business
world is no different This meant that when the market crashed people all over the country were
disillusioned This shakeup reinforced fears of going off the beaten track to become entrepreneurs
The vast majority chose the safe path as a salary man a salaried employee which is considered more
stable and respected Sony was one of the largest Japanese technology companies during this period
and had a large share of international markets However Japan’s rising yen posed a major challenge
especially for large export oriented companies such as Sony Sony struggled to keep product
prices competitive during this period as the strong yen made Japanese products more expensive
in foreign markets These economic difficulties pushed Sony to become an even bigger company
and also affected the company’s business model In the late 1980s Sony began to invest more in the
domestic market while at the same time increasing the number of salaried employees to provide more
labor During this period it reinforced a cultural tendency to see a job especially one with a
secure and stable salary as more attractive than entrepreneurship The workforce saw working
for large technology firms as a more prestigious and secure option For those who wanted to start
their own business the bureaucratic hurdles were so high that few dared to try According to
data from the World Economic Forum Japan’s entrepreneurship rate in 2023 was only 5.4% One
of the lowest among developed economies This rate is 15.6% in the US and 11.2% in China This has led
to Japan once synonymous with technical innovation falling behind places like Silicon Valley Seoul
and Shenzen In the early 2000s the fact that an electronic device was Japanese meant that it
was state-of-the-art Today they cannot even market competitive smartphones According to 2023
figures Japan’s R&D expenditure accounts for about 3.4% of its gross domestic product While this
may seem high it is well below South Korea’s 4.8% More importantly the bulk of Japan’s R&D
spending is on improving existing technologies not on breakthrough new technologies The lack
of innovation is due to people unwilling to take innovation risks The World Bank ranks Japan only
29th in terms of ease of starting a business There are additional barriers for foreigners notably the
language barrier Although English is the language of business only 8% of the population in Japan
is fluent in English Japan’s demographics also help explain its economic stagnation In 2023 the
country’s population fell to 125 million a decline of nearly 3 million since 2010 Moreover 29% of
the population is aged 65 and over the highest proportion of elderly people in the world Japan
is culturally resistant to change and historically significant change has only occurred in the
face of major societal threats Combined with low birth rates and long life expectancy this
is not an ideal environment for a technology revolution anytime soon For what was once one of
the richest countries in the world this may seem pessimistic but contrary to what economists say a
stagnant economy is not necessarily a bad economy Economists have suggested that such a slowdown
for an advanced economy could result in high unemployment low wage growth and fiscal strain Yet
Japan is the perfect counter example Its economy has not seen growth for over three decades and
contrary to those pessimistic forecasts it has not collapsed According to 2023 data Japan’s
unemployment rate is only around 2.5% one of the lowest among developed economies In the US it
is 3.7% and the EU average is around 6% Japan has very low levels of inflation partly because of
its cultural resistance to change In the past businesses have had to apologize for raising their
prices Prices remain stable allowing even stagnant wages to maintain purchasing power Between 1999
and 2021 Japan’s average annual inflation rate was almost zero even experiencing deflation
in some years In 2023 the inflation rate rose to 3.2% But this is still below most developed
economies Job security in today’s Japan is truly impressive The vast majority of working age people
have regular jobs well above the world average The Japanese people enjoy a very good standard of
living thanks to the country’s strong institutions They are known for their low crime rates both
at home and around the world The Japanese attach great importance to education and reap the rewards
Japanese students always rank high in math science and reading in international exams This shows
that the country’s investment in education is paying off Everyone knows Japan for its culture
of overwork but that’s a thing of the past At the moment Japanese workers are working even
less than Americans Interestingly Japan seems to have solved the housing problem that plagues
countries like ours While in many parts of the world young people are giving up on the dream
of owning a house In Japan it is quite different The lack of growth prospects has led to houses
being seen as consumption goods like a car rather than as an investment Even in a populous city like
Tokyo house prices have barely increased for years Japan has a good system for distributing the money
of the rich throughout society Inheritance tax This ensures social mobility even in a stagnant
economy so that wealth is not concentrated in the hands of a few The richest Japanese own a smaller
share of the national wealth than the richest in other developed countries But not everything is
rosy Of course traditional values deeply embedded in society block innovation and development
in the business world Instead of firing their employees Japanese companies are trying to retain
them in some way On the one hand this ensures job security but on the other hand it reduces the
productivity of the Japanese workforce In a world where technology is advancing at breakneck
speed in an age of digitalization and automation Japan still insists on sticking to the old ways
The lack of innovation is slowing economic growth and setting the stage for a creative collapse
Japan’s corporate structures are causing a long-standing stagnation Employees have to wait
for their superiors to retire to climb the career ladder Rigid hierarchical structures make it
almost impossible for new ideas and initiatives to emerge This makes it difficult for young
people to enter business life and change is only possible when an outsider comes in The average
age of Japanese companies is quite high leading to a lack of dynamism and innovation People are
drifting towards an uncertain future Public debt is rising relentlessly Japan was once able to ease
this burden by borrowing from its own citizens but now the situation is much more complicated Rising
debt is discouraging investment in new businesses and dampening people’s hopes for the future
The economic downturn is not just a domestic problem It is also a sign of Japan’s declining
influence on the world stage Japan once a major player in the world economy has largely lost this
position The world is changing rapidly and Japan is struggling to keep up If this trend continues
the Japanese will not benefit enough from the globalized world and will be alienated from their
own society by the influence of foreign cultures and products Japan’s experience is not just the
story of one country but a sign of the future of all developed societies Japan with its aging
population and economic stagnation is a harbinger of the challenges many countries will face in
the near future Major economies like Germany South Korea Italy and even China will face similar
problems This is not a disaster but a sign that it is time to rethink our understanding of economic
growth Japan is showing how misleading it can be to measure everything by growth figures alone
leaving its past economic successes behind Perhaps the example of Japan reminds us of the importance
of not only economic growth but also quality of life reducing inequalities and a sustainable model
Japan’s situation makes us think should we pursue continued growth and progress or should we accept
stagnation and reap the benefits it brings Japan offers us a different path but we do not yet know
if it is sustainable in the long run This choice could be an important turning point that will
affect not only Japan’s future but all of ours
In this video, we take an in-depth look at the last 40 years of stagnation in Japan, a country once expected to dominate the world economically. We tell Japan’s story from the “miracle growth” period after World War II to the present day, from being the world’s second largest economy to falling behind China. We also look at the critical economic turning point with the United States in the 1980s and why Japan today is becoming a country that focuses on quality of life rather than economic growth.
Detailing the structural, cultural and political reasons behind Japan’s economic decline, we address critical issues ranging from the effects of the Plaza Accord to the aging population, from changes in R&D investment to a lack of entrepreneurship.
Why was it once thought in movies and cyberpunk that Japanese companies would rule the world in the future, when in reality the opposite has happened? Find out how the effects of the Plaza Accord, a culture of perfectionism and risk aversion, a lack of innovation and a demographic crisis have led to this.
But despite the stagnant economy, how do the Japanese still manage to be one of the societies with the longest life expectancy in the world? With low unemployment, affordable housing prices and a high quality of life, Japan offers us a striking example that economic growth is not everything.
This economic paradox is not just Japan’s story, but a reality that many advanced economies like Germany, South Korea and even China will face in the near future. Don’t miss this critical lesson for the future of the world!
#EconomicCrisis #StagnantEconomy #PlazaAgreement #EconomicFacts #JapanEconomy
STATISTICS HIGHLIGHTED IN THE VIDEO:
Japan’s GDP in 1989: $3 trillion
Average life expectancy in Japan in 2023: 84.3 years (2nd in the world)
Yen appreciation after the Plaza Accord: 50% (1985-1987)
Japan’s entrepreneurship rate in 2023: 5.4% (vs. 15.6% in the US, 11.2% in China)
Japan’s unemployment rate in 2023: 2.5% (well below the world average)
Japan’s population over 65: 29% (highest in the world)
QUESTIONS ANSWERED IN THIS VIDEO:
📉 Why did the Plaza Accord of 1985 start Japan’s decline?
📊 How did Japan go from 10% annual growth to deflation and stagnation?
🧠 Why do Japanese people avoid taking risks?
🏠 Why aren’t house prices rising even in Tokyo?
📚 Why is a country that is a world leader in education lagging behind in technology?
Is Japan’s economic model a failure, or is this a new definition of success?
Why is Japan’s story so important for America, China, Europe and even Turkey?
🔔 Don’t forget to subscribe and turn on notifications! Follow us to discover the dark side of the world economy.
Share your thoughts in the comments: Do you think a happy society is possible without economic growth? Is Japan’s path a harbinger of the future or a warning?
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