The Heisei Era began three decades ago with Emperor Akihito ascending the throne near the zenith of one of the biggest stock market bubbles in history. It’s been punctuated by the triple hit of an earthquake, tsunami and nuclear meltdown, the fall of tech icons and the rise of automotive giants, and by creeping social change that’s seeing women and foreign people playing a bigger role in economic life.
It takes a comparison with the U.S. stock market collapse that ushered in the Great Depression to put the magnitude of Japan’s asset-price implosion in true perspective. What’s most shocking is the failure of Japanese shares to regain their highs, even after 30 years, while the Dow surged back in the 1950s. The weakness in Japanese stocks has mirrored wider problems, which set the stage for the country’s slip to third place in the global economic pecking order.
Some of Japan’s greatest corporate names have also suffered, like Sony Corp. The Tokyo-based consumer electronics champion swept all before it with products like the Walkman portable cassette player until analog gave way to digital, and the rise of Apple Inc. and South Korea’s Samsung Electronics Co. Others including Sharp Corp., now controlled by Taiwan’s Hon Hai Precision Industry Co., and Panasonic Corp. have seen their value slide from great heights.
Yet through it all, investors around the world have turned to the yen for safety in times of crisis. Ultra-low interest rates encourage investors to borrow in Japan and put the money to work in other economies that are growing more. When risks rise, these same investors run for the exits, where they are forced to buy up yen to unwind their so-called carry trades.
The country also remains a huge exporter and despite high government debt — which rose to a whopping 230 percent of GDP during the Heisei Era — corporate Japan continues to drive current account surpluses, which support the currency.
Japan has also maintained its dominant position as the world’s top creditor nation, offsetting worries about government debt and boosting confidence in the yen. It owns more than $1 trillion of U.S. Treasuries, slightly less than China’s hoard of American debt, and its big commercial banks are among the leading lenders in Asia.
The nation’s car industry has extended its reach, dueling for pole position with European giants while U.S. competitors suffered setbacks. Toyota stands head-and-shoulders above most brands in the world and has led the way with hybrid vehicles as auto manufacturers chart a course to an electric future. Its dozens of factories around the world are also testament to the international expansion of corporate Japan, which repatriates profits from abroad, even as growth ebbs in the domestic market.
The struggle for gender equality was slow to arrive but has received strong impetus from the labor shortage that’s taken hold in recent years. Women have poured into work — though mostly part-time and contract positions — to the point that Japan’s female labor force participation rate is now higher than that of the U.S.
With more working role models for girls, there are hopes that the Reiwa Era beginning on Wednesday will see women take the next step up the ladder. Women’s share of leadership roles in government and the private sector remains low, despite talk of the womenomics polices under Prime Minister Shinzo Abe, whose government quietly gave up on a goal of getting women into 30 percent of management positions by 2020.
The population has fallen for the last nine years and one person in three is now 60 or older. The challenge this presents to the economy is enormous as businesses lose both customers and workers, undermining the incentive to invest at home, and the government faces rising welfare costs and a declining pool of taxpayers to support the system. The problem is playing out dramatically for monetary policymakers, who have been buying up bonds and stocks and slashing borrowing costs in an effort to steer inflation higher and reinvigorate the economy. In a move that turned conventional policy on its head, the Bank of Japan cut interest rates to zero in 1999 and 20 years later the BOJ is holding its key short-term rate at minus 0.1 percent.
All this monetary firepower hasn’t fixed the low-inflation, low-growth problem.
Yet as the Heisei Era comes to an end, Japan’s detractors are growing quiet. It turns out that much of the developed world is also losing the battle to spur price gains. In a bout of introspection, the Federal Reserve has declared 2019 a year of strategy review, while some pundits are even taking about “Japanification” in Europe’s stuttering economy.
Meanwhile, as the demographics push Japan to slowly let more overseas workers in, the U.S. is taking steps to limit the use of H-1B visas — keeping more high-skilled foreign people out.