Japan’s economy has been characterized by deflation, stagnation, and dwindling global relevance for much of the past three decades. However, recent developments suggest that this narrative is changing. Between 1991 and 2021, Japan’s annual inflation rate averaged a mere 0.35%. Nevertheless, inflation has exceeded 2% every month since April 2022. In a significant move, the Bank of Japan (BoJ) lifted rates for the first time in 17 years in March, signaling an end to the world’s final experiment with negative interest rates. The BoJ is set to consider another rate increase at its upcoming meeting at the end of this month. Additionally, Japan’s blue-chip Nikkei stock index reached its highest level since the bubble era in February, while the broader Topix index hit its peak since 1990 last week. These developments suggest that Japan’s lost decades may finally be behind them.
Looking ahead, there are various perspectives on what the future holds for Japan. Some view this moment as a newfound opportunity. Optimists believe that Japan is truly making a comeback this time. Morgan Stanley, a prominent bank, touts a “revitalized Japan,” predicting that higher inflation and a more dynamic business landscape will propel the country towards sustained growth. This trajectory could help Japan manage its public debt and maintain its status as one of the world’s leading economies. Notably, Japan has also become a hotspot for high-tech companies looking to strengthen their supply chains. Taiwanese semiconductor giant TSMC, for instance, is investing billions of dollars in new manufacturing facilities in Japan, signaling a growing trend of tech companies flocking to the country.