Years ago I visited Tokyo near the top of boom at the end of the 1980s. One of my Japanese hosts proudly showed me the sweep of the grounds of the Imperial Palace. He stressed the royal and enduring importance of the site, but then let slip the famous jibe at the time, that the land of the Palace and its grounds was worth more than the state of California.
When I got back to the UK Embassy I told them of the remark, and quipped that if that was true it was time to sell the Emperor’s Palace site and to buy California. It would have been the investment switch of the century had it been possible. California was poised to embark on the digital and internet revolution. Tokyo property values were about to plunge from their crazy heights, as the extreme Japanese bubble burst.
In the 23 years since the Japanese economy has struggled to grow. The Tokyo Stock Exchange is still 70% below its peak. Property prices are still well down on bubble levels. Japanese banks still struggle to finance a strong recovery. Property which in the dearest areas reached $20,000 a square foot, fell by as much as 90%.
It’s not all bad news. The Japanese population is ageing and declining. Adjust the National Income and output for this, and the per head performance is of a little progress over the last two decades. Japan started rich at the end of the 1980s, and is still a wealthy society by world standards, ranked now at 25th by the IMF for per capita income. Japan still has a range of successful manufacturing companies making cars, electrical products and other consumer items. For most of the past 23 years Japan has run a balance of payments surplus based on good exports. The Japanese save a lot, so they have been largely able to finance their own government’s large deficits. There has been no inflation.
Japan is very unlike the USA or the UK in three important respects. There is no large inward migration, adding to the workforce. There is little propensity for people to borrow to spend beyond their means. The society is much more self sufficient and inward looking culturally and financially.
Next week we will look at some of the similarities with the west- the money printing and high levels of state borrowing.