Tuesday, 4 June 2013

Did Japan lose a decade?

It is widely (though not unanimously) asserted that, following the bursting of its asset bubble in 1991, Japan "lost a decade", i.e., underwent 10 years of economic stagnation. (According to some versions of the argument, Japan actually lost two decades.) I am certainly not qualified to provide a comprehensive analysis of the recent Japanese experience. Nevertheless, it is instructive to look at how the standard of living (as measured roughly by per-capita production) has changed in Japan over the relevant time-period. (Data are from the World Bank, Statistics Japan and OECD.)

The first graph (below) plots nominal per-capita production in Japan between 1980-2010. And it supports the conventional account; in nominal terms, per-capita production has simply drifted up and down since the 1991 crash.

The second graph (below) plots the relative price level in Japan between 1980-2010. It indicates that, since the early 1990s, prices have stagnated or even declined--an abrupt change from their pre-1990s trend.

The third graph (below) plots real per-capita production in Japan between 1980-2010. It shows that, once adjustments are made for changes in the price-level, the Japanese standard of living has continued to rise over the last two decades, albeit at a somewhat slower rate since 1990.

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