The infographic above summarizes the article Why the Entire World is Heading For Negative Interest Rates. It explains the issues Japan has been facing for the last three decades and how other countries are on similar trajectory (called ‘Japanification’).
Japanification: Persistent Low Inflation and Feeble Economic Growth
There have been growing concerns amongst analysts and investors alike over fears of a global economic stagnation. The trend is similar to what Japan has experienced over the last three decades or so. The world economy is seemingly succumbing slowly to ‘Japanification.’
Over the last three decades, the Japanese economy had observed a persistent low inflation and a feeble economic growth. Globally, Japan has had a higher percentage of the aging population that is above 65 years. The issue led to falling productivity as the labor force growth rates declined. The Japanese economy suffered little to no GDP growth with an increasing debt-to-GDP rates. As a result, the Central Bank of Japan had to lower the interest rates to below 0%. The government discouraged people from saving money in the banks and instead encouraged to spend in order to help generate economic activity. Following decades of low productivity, the government ran out of options to enhance economic growth. Japanese people have had to endure the effects of negative interest rates.
As other countries continue to become like Japan, investors and analysts are anxious about the threat this poses to the global economy. The term ‘Japanification’ describes how Japan has been affected by deflation and slow growth for close to three decades. Our article Doraemon Economics further explains these issues in a different way.
Symptoms in Other Parts: Europe, China and the US
Trends have shown that other parts of the world experience some of the ‘symptoms’ of ‘Japanification’. These include the falling demographics, excessive money printing as well as stimulus by the central banks. For instance, Denmark, Switzerland, and Sweden have shown to be following Japan’s footsteps through introduction of negative deposit rates. This is mainly due to the low birth rates in these countries. With China’s population set to hit its peak in 2029, the Chinese economy could experience the full effect of ‘Japanification’. This is mainly a result of the 1970s one-child policy introduced by the Chinese government.
Recent trends have also shown the UK, USA and Australia having reduced their interest rates in the range 0% to 0.25%. Economies with an above average growth rate as well as high government spending are most likely to implement market-friendly policies in efforts to compensate for high taxes and expenditures.
Arguably, Japan has also attracted long-term investment. However, the threat of ‘Japanification’ remains a worrying concern as the developed world seems to have taken up the Japanese culture of low growth and inflation and loose policy.
Particularly, the global economy faces an economic crisis due to the COVID-19 pandemic. Crisis policies such as substantial fiscal stimulus have become a necessity to survive the economic crisis. However, if maintained for longer periods, these policies tend to promote deflation and low growth which may result in global ‘Japanification’.
