The recent scenes of devastation in Japan were staggering. The price tag for rebuilding will be no less significant, running into hundreds of billions of dollars. Such a financial burden would be difficult to bear for a healthy economy. Japan is not a healthy economy.
There has been much talk of the nation’s resilience but, of late, Japan has shown few signs of being economically resilient. At the time of the disasters, national output had barely begun to recover from the 2008-2009 global financial crisis, while its trajectory in the past two decades has been nothing short of depressing.
In fact, Japan’s economic and financial system had never really recovered from the bursting of the equity and real estate bubbles (and the attendant systemic financial crisis) in 1992. Per capita gross domestic product growth averaged almost 6 per cent between 1950 and 1991, and was heralded as a miracle of the mixed economy. But growth then slowed sharply, to a little above 1 per cent. Wealth was badly hit, with inflation-adjusted residential real estate prices falling by about 50 per cent since their peak.