On current trends, Japan’s gross domestic product will grow faster than that of the US over the next 10 years. As Japan’s population is expected to fall and that of the US to rise, the relative improvement in living standards will be even greater. This will be denied by many economists and journalists, for whom Japan’s relative weakness is an item of faith.

The habit of looking at the change in GDP and assuming that this provides a good guide to the success of an economy is to blame for the prevalent view. It is a deeply embedded and near-automatic assumption that has blinded commentators to Japan’s relative economic success. In the recent past, demography has posed a far greater challenge for Japan than for other G5 countries but that has now changed. If, in other respects, Japan can maintain its past progress over the next 10 years, then the improvement in its demographic balance will boost the growth of its GDP and its living standards. Read more

The US seems expensive relative to other major stock markets. As it is probable that cheaper markets will give better returns, this implies that investors should underweight US equities. This conclusion applies, however, only over the longer term. Timing matters and this involves other considerations.

Chart one illustrates that G5 stock markets are strongly correlated with the US and so, to a large extent, markets go up and down together. The chart also shows that this tendency has been strengthening over time. Read more

It is widely, but by no means universally, accepted among economists that the “rate of interest” is closely related to growth. It is, however, also generally accepted that this applies to a closed economy, such as the world as a whole.

The growth rate of G5 countries has been declining steadily for years, and this trend has recently accelerated, as chart one shows. It seems likely that low growth has become endemic and this is being widely interpreted as implying that real interest rates will remain low. This view strikes me as being unjustified on theoretical grounds and is also a very dubious conclusion to draw from the past. Read more

The Japanese government is trying to encourage the country’s companies to increase the amount they invest. This is like trying to push water uphill. Japan as a whole and in terms of business already invests too much.

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Abenomics – the policy endorsed by Shinzo Abe, the Japanese prime minister – aims to raise the country’s growth by getting rid of deflation. It is based on two myths. The first is that the economy has done badly and the second is that it has been hurt by deflation.

The first myth comes from judging a country’s economic success by its gross domestic product. Japan has a falling and ageing population. If allowance is made for this, Japan has been the most successful of all Group of Five leading economies. It is the country whose GDP at constant prices per person of working age has grown most rapidly, at least since 1999. Read more