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Any Anime enthusiasts in the house?

Let's talk about Hayao Miyazaki, the genius animator and filmmaker from Japan. Since his debut in 1979 with The Castle of Cagliostro, he has crafted mesmerizing masterpieces, garnering immense praise and recognition 🎞️

Hayao Miyazaki's creations, including Castle in the Sky (1986), My Neighbor Totoro (2008), and Spirited Away (2001) — the latter even earning an Academy Award for Animated Feature 🏆 — are iconic among Anime fans.

Today, we’ll discuss the Japanese Economic Miracle, and more, in just 4 minutes to read.

— Weronika

QUOTE OF THE DAY

"Humans have both the urge to create and destroy."

— Hayao Miyazaki

BROUGHT TO YOU BY

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WHAT ELSE WE’RE INTO

📺 WATCH: Calling a Super Bubble in the U.S. with Jeremy Grantham

👂 LISTEN: USC alum William Rojas shares what he learned on and off the football field that helped him launch his business

📖 READ: Compounding Optimism, from Morgan Housel

THE JAPANESE ECONOMIC MIRACLE

World War 2

In 1945, Japan faced devastation from attacks and bombings during World War 2 (WW2), leaving its schools, factories, and hospitals in ruins.

Against all odds, Japan emerged as one of the most highly-developed nations on Earth, defying expectations and setting the stage for an unprecedented economic boom.

New Beginning

Following WW2, with the help of the Allied powers, Japan initiated efforts to reintegrate into the global community.

Although the U.S. and its allies still occupied several island chains in the Western Pacific previously belonging to Japan, aid for the country was intended to boost stability, making the country less prone to lasting resentments and hostilities.

From 1946 to 1952, Washington allocated $2.2 billion (about $18 billion in today’s dollars, adjusted for inflation) to support Japan's reconstruction.

Since then, Japan focused on industrial modernization and infrastructure while forging new trade agreements.

In doing so, the country realized economic growth rates exceeding 10% yearly.

The industrial revolution

With remarkable speed, the Land of the Rising Sun transformed into a thriving powerhouse.

It was one of the first Asian nations to ascend the value chain, evolving from the production of cheap goods to advanced electronic gadgets and industry-leading vehicles.

Car manufacturing

Notably, between the 1960s and 1980s, Japanese car production rose a remarkable 600%. However, it wasn’t due to its domestic success. On the contrary, Japanese car brands quickly became appealing to global consumers.

While its vehicles were initially regarded as "affordable, but unstylish" (or even ugly), it didn't take long for Japan to establish itself as a synonym for exceptional quality.

A Japanese classic, good ol’ Toyota, is still one of the top choices in the U.S.

It secured the second position in America's top 10 bestselling car brands of 2020, followed by four other Japanese car brands, which comes as little surprise since North America has been the largest export market for Japanese automobiles for decades.

Consumer electronics

Japan is renowned for its electronics manufacturing, too. It began with transistor radios and color TVs in the 1960s, expanding into various consumer electronics like cameras, printers, and computer-guided machine tools, throughout the 1990s.

Who hasn't crossed paths with famous Japanese brands like Sony, Panasonic, Canon, Fujitsu, Epson, or Toshiba? They’re staple companions for many in their homes and offices.

Real estate and services

During its economic peak, Japan experienced some pretty astonishing real estate anomalies.

In the late 1980s, the imperial palace in central Tokyo, spanning 1.3 square miles (3.4 square kilometers), was estimated to be worth more than all of the real estate in California.

Although the imperial palace was never for sale, estimates were based on the cost per square foot in the area. Still, it emphasizes the substantial financial bubble in Japan during that period.

The slowdown

Today's Japan is highly educated, with a diligent workforce.

65% of people aged 25-34 had a higher education qualification in 2021, which is greater than the 51% in the U.S. and the average of 47% across Organisation for Economic Co-operation and Development countries (OECD), including Germany, the UK, Canada, Switzerland, Mexico, and Poland.

Its sizable and prosperous population positioned Japan as a major player in the global consumer market, with an unemployment rate of just 2.8%.

Today, its population of over 125 million enjoys a high standard of living, with a per capita GDP of almost $40,000 in 2020.

But the country lost its title as the world's second-largest economy after four decades, trailing behind the United States, around 2010 when China surpassed it.

Despite Japan’s remarkable post-World War 2 recovery, things have been more stagnant recently — the country hasn’t seen notable growth in three decades.

Its slowdown in the 1990s left many wondering what had gone wrong in this once-booming country.

Main factors

Initially, as globalization and international trade progressed, competitors emerged to challenge Japan’s industrial might.

For example, Japanese car brands had to compete with Korean, European, and American brands, while electronics manufacturers from China and Taiwan started outperforming Japanese producers on prices and warranties.

Additionally, Japan has encountered considerable demographic challenges, magnified by high life expectancies and low birth rates, combined with a corporate work culture prioritizing education and career over entrepreneurship.

Young workers face a competitive job market, vying with their peers to climb the corporate ladder at Japan’s mega conglomerates.

Over the last decade, Japan’s population has aged to the point where almost 30% of its population was 65 years and older in 2021 — not the sort of balance conducive to sustainable economic growth.

Population growth has stopped and even reversed. In other words, Japan is considered “the oldest country” in the world. For comparison, in the U.S., the population over 65 is closer to 16%.

On top of that, Japanese life expectancy is among the highest in the world, hitting 85 years in 2023, and is estimated to reach 93 by the end of this century.

Meaning Japan’s already aging workforce must also support older generations for longer than in other countries.

Lastly, Japan faces the challenge of stagnant consumer spending and wage growth, hindering economic growth and contributing to deflation.

This means that prices gradually decrease each year, creating an economic trap as individuals hold onto their money in anticipation of greater purchasing power in the future.

Though, that may finally be changing.

Dive deeper

Listen to this podcast to learn more about how Japan’s economic story.

See you next time!

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