The last 30 years have often been described as a unipolar moment for the United States in political and military terms. However, economically, the world has been far more multipolar. The emergence of the G20 in 1999 marked a significant shift towards economic multipolarity, with countries like China, India, Indonesia, and Russia experiencing remarkable growth of 10% annually (will be even higher for Russia in real term, since it is heavily sanctioned). Amidst this backdrop, Japan presents a unique and intriguing case. While its real growth rate has been dismal, its strategic foreign investments have transformed it into a global economic powerhouse in a different guise.
A Tale of Two Metrics: Growth Rate vs. Investment Position
Over the past 24 years, Japan’s real growth rate has been a mere -0.6%, making it the only G20 country to experience not just stagnation but actual decline. This figure paints a bleak picture of Japan’s economic health. However, a deeper dive into its net investment position reveals a starkly different narrative. In 1999, Japan’s net investment abroad stood at $829 billion. By 2024, this figure had soared to a record $3.57 trillion, representing a compound annual growth rate (CAGR) of approximately 6%. This outpaces the United States’ GDP growth rate of 4.5% over the same period, highlighting Japan’s prowess in accumulating wealth through foreign investments.
Primary Income: The New Economic Pillar
Japan’s strategic shift towards foreign investment has borne fruit in the form of substantial primary income, particularly dividends. This income stream has become a cornerstone of Japan’s economy, reaching an impressive $200 billion annually and is projected to grow further in the coming decades. This transformation underscores Japan’s evolution from a post-war industrial giant to a sophisticated global investor, often referred to as the “global landlord.”
Generational Winners and Losers
This economic strategy has not been without its social consequences. The generational divide in Japan is stark. Those who had accumulated significant wealth by 1990 were able to invest abroad, reaping the benefits of asset appreciation and foreign income. Today, these individuals, now in their 70s to 100s, enjoy the fruits of their foresight. Conversely, the generations that followed, particularly those now aged 50 to 70, have borne the brunt of Japan’s domestic economic neglect. With stagnant incomes and depreciating domestic assets, they face a precarious financial future, unable to accumulate wealth in the same manner as their predecessors.
Doubling Down on Foreign Investment
Despite the challenges, Japan shows no signs of altering its course. Recent announcements, such as SoftBank’s ambitious $100 billion AI Stargate project and Prime Minister Ishiba Shigeru’s pledge to invest $1 trillion abroad over the next four years, underscore Japan’s unwavering commitment to its foreign investment strategy. This persistence, even in the face of significant yen depreciation, highlights Japan’s long-term vision of solidifying its status as a global financial leader.
The Road Ahead: 2030-2070
Looking towards the future, Japan’s economic landscape may be on the cusp of another transformation. With an annual account surplus of approximately $200 billion—largely driven by dividend income—Japan is well-positioned to sustain a 2% inflation rate despite the aging demographic. This surplus, equivalent to 4-5% of its GDP, provides a stable foundation for reigniting domestic investment. Key urban areas, where population concentration is highest, are likely to see a resurgence in housing and infrastructure development. Additionally, Japan’s startup ecosystem, particularly in high-tech niches around universities, is poised for growth.
Another potential catalyst for Japan’s economic revival is the anticipated capital flight from Europe. As the European Union grapples with political and economic uncertainties—exacerbated by populist movements curtailing immigration—investors may seek safer havens. Japan, with its robust creditor position akin to Switzerland’s, could become a magnet for this capital. An influx of funds into yen-denominated assets would not only strengthen the currency but also attract global talent in science and finance, fostering a virtuous cycle of innovation and growth.
Conclusion
Japan’s economic journey over the past few decades is a testament to its adaptability and strategic foresight. From the post-war boom that fueled its rise as an industrial titan to its current role as a global investor, Japan has continually reinvented itself. While challenges remain, particularly for its younger generations, the nation’s commitment to foreign investment and its potential to attract global capital position it well for a new era of domestic growth and innovation. As Japan navigates the complexities of the 21st century, its evolution from stagnation to global landlord offers valuable lessons in resilience and long-term vision.