Recently, the cost-of-living crisis is a common topic on the news. Considering that just a few years ago, prices barely rose—to the extent that there was concern about deflation—the change in the general mood across society is apparent.

Just as online meetings and lectures became normalized, many things changed in the period just before and after the COVID-19 pandemic, and our attitudes to pricing is one of them.

This current trend began with high prices for resources coupled with a weak yen resulting in an increase in raw material prices. This cost-push inflation initially led to higher prices for food, electricity, and gas, but recently we are seeing the effects extend to higher prices in eating out and other services.

Thinking about trends of the economy and society from the time axis

After the bubble burst, escaping from deflation had been seen as a major policy issue, but recently, consumer prices (compared to the same month in the previous year) continue to remain above the target of 2%. For the first time in 30 years, wage increase rate was a high level in the spring of 2023, and we also saw high stock prices for the first time in 33 years.

It could well be that Japan’s economy is at a major turning point. Amid such circumstances, the direction of the Bank of Japan’s monetary policies is also gaining attention.

Of late, I have been interested in looking at such economic and financial trends amid the events of Japan’s economy in the past 30 years or so from a contemporary historical perspective.

Looking back, the past 30 years or so have been a series of unexpected events. Besides the COVID-19 pandemic, the bursting of the bubble in the early 1990s and the bankruptcy of Lehman Brothers in 2008 were events beyond our imagination.

After the bubble burst, many people thought the situation would recover after a while and did not expect that we would linger at the door of stagnation for a long period of time. There was also a series of bankruptcies involving major banks and stock companies from 1997 to 1998.

The script of the movie “Bubble Fiction: Boom or Bust” (produced by Fuji Television Network, Dentsu, Toho, and Shogakukan), which starred actress Ryoko Hirosue, contained the phrase “No one thought that the bank would go down…” A time traveler looking at the streets of Japan in 1990 would probably not have imagined that major banks would go bankrupt seven years later.

Furthermore, this financial crisis became the impetus for a rapid cooling of the economy, leading to a deflationary recession where prices fall even when looking at consumer prices.

“Bubble Fiction” premiered in February 2007. At that time, economic expansion was expected to continue in both the United States and Europe, with an atmosphere of a mini bubble. The BNP Paribas shock occurred six months later, followed by the bankruptcy of Lehman Brothers one and a half years later. Truly, history repeats itself and no one knows what the future holds.

Look at data and investigate events

When looking at such economic trends, it is important to study data without any preconceptions and properly investigate the events so far. Then, use statistical methods to confirm the characteristics of data, and think about the implications and meanings obtained. This is the foundation of research.

Besides academic papers in specialized fields, reading newspapers and magazines is also useful for getting various ideas and thinking about the direction of research.

The environment around us has changed significantly after going through the COVID-19 pandemic, and society’s concerns about the economy have gone from deflation and long-term stagnation to rising prices. These significant changes have resulted in greater uncertainty about the future.

There is the feeling of expectation that we are almost about to escape deflation, an issue that has plagued us for many years. At the same time, this feeling is mixed with unarticulated anxiety that we may return to deflation due to some kind of unexpected event.

Under such circumstances, what are the policy responses required? What kind of response will the government and the Bank of Japan take? I intend to continue monitoring these issues with interest.

The book I recommend

“Rikakei no Sakubun Gijutsu”(Writing Techniques for Science and Engineering)
by Koreo Kinoshita, Chuko Shinsho

While the title states “Science and Engineering,” this is a must-read for anyone who is researching something and going to write a report. This amazing book was published more than 40 years ago but is still being sold today.

Interviewed: October 2023