[MUSIC] For those who have lived long enough to remember it, Japan was the miracle economy of the second half of the 20th century. And you can see why on this chart where I'm showing historic growth rates. We don't usually go back this far, but I've taken it back to 1946. Here you can see how fast, once the boom that would come right after World War II occurred, how fast after that period Japan continued to grow. In fact, if you look at those numbers and you take an average for the period up to the early 1970s, you would get a growth rate averaging around 10%. Something very much like China, which may surprise you if you haven't followed Japan for very long. So we have to think about that very fast growth period, see where that came from. And then suddenly, there's a break. There's a break in the early 70s, which we would understand to have to do with the oil crisis with prices of petroleum rising. That slowed them down. There's a break in around 1985-86 that you can observe, and then the chart stops at the year 2000. But definitely, you can see a before and an after for Japanese growth. If we come up to the present time and we continue to follow the rates of growth of Japanese GDP, of course, this would be real growth rates without inflation. I've got a group of countries here on this chart, up until 2017. And you can observe that Japan has the lowest rates of any of them, it's down there at the bottom of the chart almost all the time. So something happened. Something happened between those really high growth years of the post-war period up until the oil crisis and then whatever happened in 1985 that we'll talk about. And what was the end of the 20th century and the beginning of the 21st century for Japan, a mystery we need to solve. On this chart, I've put three different series, and there are a few surprising things here. You remember when we looked at the United States, I put real GDP growth, and I put nominal GDP growth. And we said since we take the inflation out of nominal, usually nominal is higher than real. I want you to notice on this chart what's happening to Japan. You notice that during long periods, nominal GDP growth is less than real GDP growth. How can that be? You don't find this anywhere. Well the reason is Japanese deflation. We'll turn to that in just a minute. But prices were falling in Japan, which meant that when we adjusted one year for inflation, we actually had to raise GDP, rather than lowering it, as we normally do when we calculate real GDP. And then you can see the third series is per capita GDP growth. Here something else interesting is happening. Since in Japan the population is declining, something we'll talk about soon, actually when GDP doesn't grow very much, GDP per capita may continue to grow. Because you are dividing out an existing GDP, or one that's only slightly larger, among a shrinking population. Again, a very unique feature of Japan. Browsing through the other indicators that we worked with in the US session, here you've got inflation. And again you will see that unusual situation that I just mentioned, which is deflation in Japan. Most countries have prices going up year after year, but some countries occasionally have prices going down from one year to the next. And here you can see this in Japan. In fact, it's not just sometimes. On this chart you have nine years during which the country experienced deflation and only eight years in which it experienced inflation. So if you compare this to the U.S. chart, where we had numbers above three, we had a lot of numbers around two, here you can see how very low inflation has been in Japan. And in fact, it has often been negative. We'll talk a little bit later about what deflation does to an economy. But it's something that I want you to keep in your minds as we begin to read this story about Japan from the data. Then we have, of course, the unemployment figures. And here, if you compare these to the United States, you see that unemployment is really low. Now I've put on there the NAIRU as well, which is sort of the target unemployment rate, as we said, the lowest your unemployment rate can go without inflation accelerating. And you can see that at the end of the period, unemployment in Japan is well below the NAIRU. In fact, we're talking about an unemployment rate below 3%. Just coming back to a couple of indicators that we also mentioned with the United States so we can see the contrast with Japan. Here's the Gini coefficient of income equality, which you remember, the lower it is, the more equally income is distributed in the country. And here we see that Japan has a very equally distributed income. People are very equal. This has to do with a lack of immigration, and maybe we can turn back to this issue later. And then if we think about doing business, the ease of doing business, which is a world bank indicator, we saw in the US session that in the United States it's very easy to do business. United States is sixth in the world in the ease of doing business. Japan's a little bit worse. It's in the top 40 countries in the world, so it's not a hard place to do business, but a bit more bureaucratic than the United States. [MUSIC]
