If Japan is Really Growing, then Why Are Citizens Complaining?

You know, if you just glanced at the headlines coming out of Japan, you’d probably think everything was picture-perfect: the stock market has hit all-time highs, and the weaker yen (the infamous yen-cheap phenomenon) is supposedly great for exporters . But here’s the thing—if you dig just a little deeper, you find a weird disconnect where corporations are thriving, yet the average household is stuck in a recession-like state . This peculiar situation is what analysts call a 'low-key growth', where economic growth exists, but the benefits barely trickle down to wages or domestic investment . What’s interesting is that this structural problem isn't new; it has roots going back to the 1980s when Japanese companies aggressively invested abroad to avoid the high yen, creating a cycle where profits earned overseas rarely flow back to boost the domestic economy .

This long-standing structural preference for offshore investment means that even in times of prosperity, domestic wages stagnate, and consumption shrinks, despite the soaring stock prices . For example, during the 71-month boom under Abenomics, inflation never hit the target 2%, and real economic growth remained under 1%, proving that the good times were mostly reserved for the corporate elite . Now, this phenomenon is about to get even more intense, thanks to Japan's massive commitment to invest $550 billion in the US economy, which will only deepen this structural reliance on external growth . I've found that this commitment, while presented as strengthening the US-Japan alliance, is effectively an agreement to pump even more capital out of Japan, guaranteeing that the "low-key growth" remains the dominant economic reality for years to come .

Why Is Japan Committing $550 Billion to the US, Even If It Hurts?

When you look at Japan's recent agreement to invest a staggering $550 billion in the US, especially given the precarious state of domestic consumption, it seems counterintuitive, right? Here’s the counterintuitive insight: for Japan, this massive investment is not about maximizing immediate financial returns; it’s a non-negotiable insurance policy for their single most critical industry—automobiles . You see, the primary goal for Japan was to secure a reduced US tariff rate of 15% on cars, a move considered vastly more vital than the investment itself . This isn't just about trade surplus; the automotive sector supports a colossal ecosystem: out of 10 million manufacturing workers in Japan, 5 million are connected to the auto industry, sustaining countless small and medium-sized enterprises through the supply chain .

This leads us to the reality that foregoing the $550 billion investment was simply never an option for Japanese policymakers . They view the US alliance as paramount, believing that no other international relationship can replace the security and economic benefits derived from a strong US partnership . Therefore, the investment package, managed by a Special Purpose Vehicle (SPV) controlled by the US, is essentially a strategic move to demonstrate unwavering commitment, especially in the face of potential uncertainty from political figures like Donald Trump . While the terms of the deal—such as the 9:1 profit split favoring the US after the principal is recovered and the high risk of failure falling heavily on the Japanese side—are blatantly unequal, the goal remains the preservation of the alliance and, crucially, the protection of that vital automotive export lifeline .

What’s truly fascinating is how this investment is structured to minimize domestic financial panic: Japanese officials have stated that the $550 billion, while a huge sum, was set within a range that would not significantly disrupt Japan’s foreign exchange market, given their substantial $1.3 trillion in dollar reserves and unlimited currency swap agreement with the US . While politically contentious—with 20-30% of Japanese citizens expressing strong dissatisfaction that no politician dared to call the terms unfair—the prevailing consensus among the elite is simply to accept the reality, maintain the indispensable alliance, and secure their national industrial interests, regardless of the cost .

Can Populist Politicians Really Change Japan's Economic Fate?

The current political scene is undeniably complex, with stock markets volatile and the yen weakening significantly, leading to a phenomenon dubbed the "Takaichi Trade" . Takaichi Sanae, a prominent political figure, has made waves by proposing policies that are essentially an aggressive continuation of Abenomics: slashing interest rates, expanding government investment, cutting taxes, and financing it all through issuing more government bonds . This rhetoric has certainly excited markets, contributing to the Nikkei briefly surpassing 48,000 yen and the exchange rate nearing ¥155 to the dollar . But here is where theory clashes dramatically with reality.

The core problem for any politician pushing such expansive fiscal policy today is the current financial environment, which is vastly different from when Abenomics first launched . Back then, long-term interest rates were near zero; today, the yield on 10-year government bonds is at its highest level in three decades . Given that Japan already has a GDP-to-debt ratio exceeding 230%, pushing more bond issuance now would dramatically increase the burden on the government . Furthermore, the super yen-cheap situation—with the dollar now around ¥150, compared to ¥100-¥110 during Abe’s era—means that Takaichi’s proposed interest rate cuts and bond issuances would be like pouring oil on a fire, exacerbating the yen's weakness and causing severe side effects .

From my experience, while Takaichi resonates with the public by appearing as the rare politician willing to challenge the US on unequal deals, her power to fundamentally shift economic policy is severely limited . She faces significant pushback from within her own party, notably from figures like Aso Taro, who, having served as Finance Minister for nine years, strongly advocates for fiscal balance and central bank independence—policies diametrically opposed to Takaichi’s spending proposals . Moreover, her ambitions directly conflict with the Bank of Japan’s (BOJ) ongoing normalization process, which involves raising rates and reducing quantitative easing; Takaichi’s proposals would completely reverse this delicate progress . Ultimately, despite the political noise and populist appeal for immediate relief (like proposals to drastically raise income tax exemption limits), the nation’s core direction—steady advanced industry investment and the continuation of the US investment scheme—will likely proceed, regardless of who holds the top office .