How well has Japan done since its asset markets crashed?

Gillian Tett’s column in the Financial Times yesterday was devoted to a cautionary note to the Chinese authorities to beware of following Japan’s example following the share market bust that took place after 1989.

There were many things the Japanese authorities could no doubt have done better after 1989, but I’ve long found it a bit surprising just how relatively well Japan has done over the last 25 years.  It isn’t a spectacular performance by any means, and Japan isn’t one of the top tier of OECD countries in terms of either GDP per capita or GDP per hour worked.  That shouldn’t be too surprising –  on most measures of institutional quality/deregulation, Japan tends not to score that well.  Microeconomic reform and liberalisation haven’t been a hallmark of Japanese economic management (see, for example, the TPP negotiations).

But looking at growth in GDP per hour worked for the OECD countries since 1989, Japan has been pretty much in the middle of the pack, with total growth (over 25 years) only about 2 per cent less than the median country.  New Zealand is 4th from the bottom on that measure.

Here is how Japan has done relative to the Anglo countries (and to Germany) since 1989, using OECD data.

GDP phw jap and anglos

This measure takes full account of the changing terms of trade.  Over the full period, Japan has done worse than three of these countries (the US, Australia, and Germany), and rather better than the other three (New Zealand, Canada, and the UK).  Over the last 15 years or so, Japan looks to have done a little less well, but that was well after the equity bubble burst.  It may well have to do with the surge in the terms of trade in the commodity-exporting countries from around 2003/04, matched by a severe decline in Japan’s terms of trade.

Another way to look how Japan has done is to look at growth in total factor productivity since 1989.  I’ve run this chart previously.  Over 25 years, Japan has been in the middle of the pack, a quite unremarkable performance (but materially better than New Zealand, Australia, Canada).

tfp since 89

Would, I trade New Zealand’s economic performance since 1989 for Japan’s?  The large Japanese government debt counts against that, but income/productivity are what pay the debt, and Japan has managed more productivity growth than we have.

Out of interest, here is how OECD countries rank in 2014 on this measure of GDP per hour worked, in current prices, converted to USD at PPP exchange rates.  For New Zealand, bear in mind that (a) 2014 saw the highest terms of trade for decades and (b) we were still ahead of Japan in 1989.  Oh, and Japan hasn’t had the advantage of New Zealand’s “critical economic enabler”, the large scale skills-focused immigration programme.

gdp phw 2014