As if out of nowhere, everyone's archetype of secular stagnation is leading the Group of Seven developed economies in life expectancy, per capita growth and, for the first time in decades, an end to the deflation that oppressed chief executive officers and global investors alike. And if that is not enough, this economic juggernaut — better known as Japan — is also providing the biggest dollar denominated stock market returns anywhere in the world.
The Land of the Rising Sun experienced its largest decline in population last year — of more than 500,000 to 125.4 million people — and residents are living longer than 84 years on average (fourth among 240 countries). And yet, the world's third-largest economy had the most significant per capita increase in gross domestic product between 2013 and 2022 in local currency terms. That 62% appreciation to ¥4.72 million ($32,000) as the size of its society shrank 2% easily surpassed the U.S. (16% with a 6% rise in population), Canada (45% and 12%), the U.K. (48% and 5%), Germany (32% and 5%), France (33% and 3%) and Italy (30% and -1%), according to data compiled by Bloomberg.
The Japanese penchant for living longer and prospering to an extent widely unanticipated at the end of the last century is turning out to be a lesson in managing wealth creation for the rest of the demographically challenged G7 and a bonanza for some of the savviest investors. Actively managed exchange-traded funds just poured $1.5 billion into Japan, the most since data for the $13 trillion ETF industry was compiled in 2018. The surest sign that money managers worldwide favor Japanese companies, instead of allocating their bets to passive indexes, coincides with the most bullish outlook among G7 markets, with analysts raising their price targets by 10% during the past three months.