At least some of the measures Shinzo Abe brought in when elected five years ago are bearing fruit – not least in higher employment and a gradual easing of the grip of deflation.
If you want optimism, as a break from the paralysing intricacies of Brexit and the unscripted dramas of the White House, go to Japan. There is a sense of a brighter future within reach. That should be encouraging for the global economy and for other countries grappling with similar problems of debt and an ageing population.
Gazing out from any of the gleaming towers that punctuate Tokyo’s astonishing urban landscape, it is hard to remember how recently it all went wrong. At the height of the 1980s bubble, the Imperial Palace, a small oasis in the heart of the capital, was said to be worth as much as all the property in California. The 1991 implosion was followed by deflation and stagnant growth; the attempts at waves of stimulus contributed to soaring government debt (now at more than double GDP).
“If we’d known how bad deflation was, we might have tried even harder to stop it back then,” said one former Bank of Japan official to me.
Despite a modest recovery in the mid 2000s, the financial crisis of 2008 gave a further knock. The 2011 explosion of the Fukushima nuclear plant raised questions about ageing technology. Meanwhile, the ageing of the population has led to soaring pension and medical bills for the elderly and to a divided workforce, the older ones with enviable job security and entitlements, and many younger ones on contracts.
In 2013, Japan’s Cabinet Office surveyed people aged 13-29 in seven different countries about the future; only 12.2% of the Japanese group said they were hopeful, half the level in France and a quarter that in the US.
This now feels like a phase that is passing if not yet past. In June, the Bank of Japan repeated its view that the economy was “turning towards a moderate expansion” and that this would continue. It has been forecasting real GDP growth of 1.6% in this fiscal year. Manufacturing has led the recent growth, and employment is at its tightest since the peak of the bubble. Most triumphant, given a long record of missing inflation targets, is a cautious expectation that inflation will move gradually up to the Bank’s target of 2%. In June, the Bank kept monetary policy on hold despite the encouraging signs, not wanting to start speculation about the end of stimulus. But that is a measure of how far things have come.
At least part of what Abe has done is working. Elected in 2012, he set out on a triple-pronged programme of quantitative easing to end deflation, give a short term fiscal stimulus to boost growth, and implement longer term structural reforms. The first part was initially undermined by efforts to reduce the deficit which choked consumption and triggered recession.
More recently, there are signs that the stimulus is working, as well as liberalisation of some sectors. Tourism numbers were up 21.1% in April-July 2017 compared to the same period a year earlier. Many are Chinese, but increasingly they are from Europe and English-speaking countries.
Ahead of the 2020 Olympics, signs on the Tokyo subway, major roads and rail stations are in Japanese, Chinese and English, sparing visitors the hazard of frantically comparing some scribbled Japanese characters with station signs as they flash up. Meanwhile, the proportion of women working rose – another of Abe’s targets – to 50.4% in December compared with 47.8% when he took office.
Weaning pensioners off their benefits is not going to happen easily; some argue the solution is simply to wait until that generation dies out. But other unchanging factors are a source of stability – such as the appetite of Japanese savers for government debt.
Japan is hardly the only country to confront these problems of an ageing society, slow growth and debt. The lesson it offers is how to buy time to experiment with stimulus and reform, to edge slowly out of what seemed like an unyielding predicament.
Bronwen Maddox is director of the Institute for Government and a commentator and broadcaster