Is Japan’s economy at a turning point?

Aoki Masahiko, a prominent Japanese economist, once predicted it would take 30 years for his country’s economy to emerge from the “lost decades” that began in the early 1990s. At that time, an asset bubble burst and the sun set on the model that had helped Japan grow rapidly. Though the country remained rich, it slid into deflation and its growth rate slowed. Aoki reckoned generational change would be necessary for a new model to coalesce. He started the clock at the moment the bubble had definitively burst and the long-time ruling party, the Liberal Democratic Party, first lost power: the year of 1993.

Fast forward to 2023 and Aoki’s words ring prophetic. The world’s third-largest economy is awakening from its decades-long torpor. After years of deflation or low inflation, Japan is seeing its fastest price growth in more than 30 years. Wages, long stagnant, are rising faster than at any time since the 1990s. Both increases are driven largely by global supply shocks. But they are not the only changes afoot. As Aoki predicted, gradual institutional and generational shifts are bearing fruit and changing Japan Inc from within.