In the late 1980s Japan’s potential growth rate was estimated at around 4% by the Bank of Japan. These days the economy’s speed limit is thought to be less than 1%.
That’s for three main reasons: the working-age population is shrinking; companies have slashed investing after years of stagnation; and productivity has dwindled.
Japan’s prime minister, Shinzo Abe, is now trying to tackle this with a package of reforms aimed at boosting productivity and, ultimately, growth. This is the so-called ‘Third Arrow’ of his programme to end years of deflation (the first two were money printing and more government spending) [...]
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