Japan is the third largest economy in the world, with a
total GDP of almost $5 trillion. It is however one of the most indebted country
in the world with a debt to GDP ratio of more than 220%. The country has a
population of more than 126 million people. In recent years, the country’s
economy has undergone serious economic challenges. These challenges can be
traced to more than 20 years ago, when the asset bubble burst in late 1991. In
the financial circles, this period is known as the lost score. It is a period
in which the GDP declined from more than $5 trillion.
Japan faces a number of challenges. For example, its
traditional companies, which used to dominate all sectors of the global economy
have been overtaken. These are companies like Panasonic, Toshiba, and Casio.
They have been overtaken by new large companies from China and other Asian
countries. As such, the country has been unable to develop new companies that
could compete with these companies.
Perhaps, the biggest challenge faced by Japan is its
changing demographic. As a result of a number of issues, the Japanese
population is not growing. In fact, the population is expected to decline to
less than 107 million in 2050. In addition, the country’s population is aging. In
fact, it is ranked as number two in the median age of the population. This
issue has been increased by the country’s protectionism tendencies, which makes
it hostile to foreigners. According to the government, the number of foreigners
in the country was about 2 million or 1.95% of the entire population. This is
in contrast to the 14% of the United States.
Part of the reason why Japan is hostile to foreigners is
that they are viewed as being job takers. A good example of this is the ongoing
persecution of Carlos Ghson, a man who is credited with saving Nissan. While he
might have done some crime, most people agree that his problems are because of
the protectionism of the country. While it is early to judge, there is a
likelihood that many foreigners may be cautious about doing business in the
country.
In the meantime, the Bank of Japan has struggled to boost
the country’s inflation. For the past few years, the bank has left rates in the
negative territory. It is also continuing with the quantitative easing program,
which involves buying of Japan Government Bonds. As a result, the economy is
growing by less than 2% and wages have continued to remain being volatile. All
this means that the BOJ could have a difficult time in case of a recession. The
chart below shows the performance of the yen against other currencies.
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