Sanae Takaichi’s thumping recent victory in Japan’s elections gives hope that Japan’s economy may finally be recovering. There is much recovery to do; at IMF estimates for 2026, Japan’s GDP per capita (at purchasing power parity) is $56,444, below even badly-run Britain’s at $65,215 and far below the United States at $92,883, let alone its regional neighbors Taiwan at $88,565 and Singapore at $161,546. In terms of average wage level, Japan’s position is only marginally better. Yet Takaichi’s opposition to heavy immigration and the Bank of Japan’s abandonment of Ben Bernanke’s suicidal zero-rate policies suggest the economy could recover, as does the recent sustained rise in the Nikkei stock index. However, Japan becoming as rich as Singapore, almost trebling its GDP per capita, would require truly optimal policies (or dreadful backsliding by Singapore).
Japan endured more than 30 years of relative decline before its fortunes began to turn early this decade. In 1990, at the peak of its bubble, Japan had GDP per capita of $25,810 compared to Britain’s $20,913, the United States’ $23,848 and Singapore’s $12,763. Alas, those figures are nominal and thus do not take account of relative living costs which were very high in Japan then. On the same nominal basis in 2026, Japan was at $36,391, Britain at $60,011, the U.S. at $92,883 and Singapore at $99,042. In other words, over the last 35 years Japan has done even worse than Britain; whereas it was leading the United States in 1990, it is now below half the U.S. level.
The above numbers naturally need to be taken with a large pinch of salt. Singapore’s position is overstated because it is home to many tax haven companies, who employ few Singaporeans but contribute heavily to GDP – Ireland’s figures are subject to the same distortion, while paradisical Liechtenstein and gambling-hell Monaco rank even above Singapore in GDP per capita. Also, exchange rates have a considerable effect on GDP per capita that I do not entirely understand. Japan’s GDP per capita figures in the early 1990s are distorted by a strong yen above 100 to the dollar, whereas its current figures are depressed by a weak yen below 150 to the dollar, with the yen having fallen by a third against the dollar even though Japanese inflation has throughout been below U.S. inflation. Still, the distortions are not so great as to destroy the qualitative picture, merely modify it.
Traditionally, Japan was always richer than its neighbors. At the Meiji Restoration in 1868, Japan’s living standards were about double those of its neighbors China and Russia, although well below the richest countries in the industrialized West. The disaster of World War II set it back badly, to a level even below that of postwar Germany, but it should not have been a surprise when after 1949 Japan’s economic growth ran at 10% per annum and its living standards soared, converging rapidly on those of the industrialized West.
In the 1980s the Japanese economic miracle began to go wrong. The endless run-up in the stock market over-financialized the economy, producing an equivalent run-up in Japanese real estate prices, so that ordinary people resorted to tactics like the 100-year mortgage – Londoners of the last couple of decades will know how they felt! I was in Japan several times during those years, and I was struck both by the over-sophistication of downtown Tokyo (my New York colleagues loved it!) and by the relative backwardness and poverty everywhere outside the city centers.
I have since discovered that this repeated a previous pattern, from the “Genroku” period of 1688-1704, and that the great Shogun Tokugawa Yoshimune (1684-1751, Shogun, 1716-45) had solved the problem by re-orienting the economy towards rural areas. Instead of ostentatious display by over-rich big-city merchants under Yoshimune there appeared an entrepreneurial rural economy in which the father of Eiichi Shibusawa (the greatest company-creator in Japanese history) had, as a peasant farmer before the Meiji Restoration, made his family quite well off by wholesaling indigo balls, used in textile dyeing – Shibusawa himself got his start as an indigo ball salesman for his father.
After 1990, the financial crash de-financialized the Japanese economy, bankrupting many banks and companies and removing the excesses in house prices. Today, house prices in Japan are quite reasonable by Western standards, although it must be remembered that in Japan with its frequent earthquakes, houses are smaller and flimsier than in the U.S. and are expected to fall down after 20-30 years and be replaced with new buildings. The gradual decline in Japan’s population and the restrictions, formal and informal, on immigration, are helpful here also – there is no excess pressure on the housing stock as in the urban West with its tsunami of legal and illegal new entrants.
Alas, since 1990 Japan’s crazy adoption of the fallacious nostrums of Ben Bernanke and Maynard Keynes has led the economy to three decades of stagnation, with zero interest rates, public debt above 250% of GDP and the stock market’s Nikkei 225 Index in early 2020 still below half its 1990 peak in nominal terms. For most of this time, the yen was thoroughly overvalued, above 100 to the dollar, so the stagnation and deep recession was partly imposed from outside.
Even in their own terms, the Bernankeist monetary policies did not work; a stock market that in 2020 was half its level of 30 years previously was killing, not stimulating economic activity. Instead, the excessive encouragement of unsound debt, government and otherwise, and lack of reward for equity investment condemned the Japanese economy to decades of stagnation. It would have been much better, when Junichiro Koizumi after 2001 attempted to get the government budget under control, to accompany that with a freeing of interest rates, so that the giant sucking sound of resources into the public sector was stemmed or ideally reversed. By doing so, Japanese policymakers could have revived the private sector after a recession that, while unpleasant, did not take up so grotesquely large a fraction of people’s lives.
A 2007 Japanese movie “Bubble Fiction: Boom or Bust” well illustrates the effect of the Bernanke-prolonged recession. The young heroine is unemployed (until she time travels back to 1990 in a washing machine invented by her mother, who works for Hitachi) and the promising Long-Term Credit Bank trainee of 1990 has been reduced in 2007 to debt-collecting for the yakuza. Regrettably, the film’s solution of encouraging the 1990 real estate bubble still further and spending yet more borrowed money on fancy infrastructure was precisely the reverse of what was needed. You can’t expect film-makers to understand economics, even though they portray its effects memorably!
That is now changing; with the Nikkei 225 at 57,000 almost 50% above its 1990 peak, interest rates safely above zero – the Japan 10-year bond today yields 2.12% — and modest growth and inflation already reducing the overhang of public debt to around 230% of GDP. A stimulative right-wing government, clamping down on immigration so that Japanese real estate prices do not form another bubble and productivity growth is encouraged, is just what the economic doctor ordered. In an ideal world, that government would take the Yoshimune approach, seeking to emphasize small-scale and rural development since Tokyo is already too big and even in Japan with its people’s unique approach to life, we cannot expect all the necessary innovation and entrepreneurship to come from within corporate giants, however well-run they may be.
Now what is needed is deregulation, removing all the impositions of the “climate change” scam and other economic drags imposed by international bureaucracies. The only one of Takaichi’s stated policies that must be avoided is a burst of public spending, or yet more superfluous infrastructure – growth will make the fiscal position come right, both by increasing revenues and by increasing the GDP denominator of the debt to GDP ratio, but it needs time to do so. Meanwhile, the Bank of Japan needs to keep increasing interest rates to the 3-4% range, to prevent re-financialization and new bubbles as the stock market continues to surge.
Historically, Japan achieved its higher living standards by superior technology and discipline – in the 1860s, the country bred over 200 varieties of silkworms, producing a far greater range of silks than was available in the West or even China. Those virtues still exist – Japan is the world leader in robotics, a technology infinitely combinable with the U.S. superiority in AI. Given that superiority, low immigration and moderately decent policies will cause Japan’s rapid rise in living standards to resume, quickly overtaking the pathetic laggards of Britain and the EU and making progress towards the heights of the U.S. and Singapore.
Singapore, in contrast, benefited from two supremely good leaders, father and son in Lee Kuan Yew (1923-2015; prime minister, 1959-90) and Lee Hsien Loong (1952- ; Prime Minister 2004-24) who followed basically the same philosophy of low-tax free market development, albeit with strong government guidance as in Japan. Singapore saw itself as an open trading nation, so avoided the policies of import substitution that held back so many Third World countries. Then after 1990, and the Asian financial crisis of 1997-98, it managed to avoid a visit by Ben Bernanke, and so avoided the zero interest rates, money printing and debt expansion that infested most Western countries. As the most stable country in the region, it has become a major financial center, not simply for investment bank “deals” but for international fund management, a more important business in today’s global economy. It has also tightly controlled immigration in terms of quality, although its current population of 6.1 million and its extensive office, logistics and retail developments strain the real estate markets of a small island.
I am an enormous admirer of Singapore, but without the Lees, father and son, it may slip back somewhat in relative living standards. Japan, conversely, seems certain to advance rapidly under Takaichi, fueled by its high-tech capability. It was well ahead of Singapore in 1990; for it to return to that position would essentially require it to run the last 35 years’ developments in reverse which, absent washing machines that can move through time, seems unlikely. But as the disclosure below notes, I would bet on either Japan or Singapore ahead of almost all Western countries or indeed China.
Disclosure: I have moderate portions of my investment portfolio in Japanese and Singapore shares (Japan somewhat larger), as well as in other parts of Asia.
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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)