Japan Officially Gets Leapfrogged by the Four Asian Tigers

Japan Officially Gets Leapfrogged by the Four Asian Tigers

Throughout the decades in the 1950s and 1960s, the Japanese economy was envied for its unrelenting growth.

Dubbed the “Post-War Miracle”, this period of time saw Japan become a global center of manufacturing and exports. Japanese brands such as Toyota, Sony, Honda, Mitsubishi, Panasonic, and Canon would become household names worldwide. By the 1960s, Japan catapulted to become the second largest economy in the world.

Today, Japan has the third largest economy in terms of total nominal GDP, and the fourth largest by GDP adjusted for Purchasing Power Parity (PPP). This doesn’t seem so bad on paper, but Japan also has nearly 130 million people.

What do those amounts look like per capita? It turns out to be not so good.

After over two decades of economic stagnation, the most recent GDP per capita (PPP) numbers for 2014 by the IMF had the Japanese economy in 29th place globally. As you saw in the opening chart, even more recent projections from another source show that all four Asian Tigers have now all officially leapfrogged Japan in terms of GDP per capita (PPP).

The “Four Asian Tigers”, a term used to reference the highly free-market and developed economies of Hong Kong, Singapore, South Korea, and Taiwan, have continued to grow despite Japan’s struggles. Singapore, a significant Asian banking center, passed Japan in GDP per capita (PPP) back in 1979. Hong Kong would be the next to do so in 1993, and Taiwan would jump ahead during the Financial Crisis. The last of the leapfrogging happened when South Korea passed Japan this year.

This shouldn’t be too surprising, as the struggles of Japan over the last 25 years have been well-documented. However, a point of interest may be the context of how these challenges began.

In the mid-80s, the yen had basically doubled in value against the dollar. For a manufacturing and exporting nation (similar to how China is today), this was less than ideal. While this was happening, the Bank of Japan intervened with five sessions of monetary easing starting in January 1986 to weaken the yen, cutting interest rates from 5.0% to 2.5% in just one year.

During this time, monetary growth was much quicker than anticipated. More-than-sufficient liquidity and ultra low interest rates fueled speculation, which helped lead to inflate a classic asset bubble. In the early 90s, the BOJ hiked rates to counter speculation and curb inflation.

The asset bubble popped, and Japan’s economy would be sent into the “Lost Decade” – a “decade” which has lasted 25 years.

You can see the drastic increase in money supply leading up to the crisis here:

Japan now has the world’s highest debt-to-GDP ratio of 243% as well as the world’s highest debt-to-revenue ratio.

Despite this, they’ve started an even more potentially dangerous experiment known as Abenomics, which is the three-headed beast of unprecedented quantitative easing, monetary stimulus, and reforms.

Original graphics by: Utopia – You’re Standing In It (blog), Trading Economics