Richard Katz on why Japanese economic stagnation is not inevitable
Japan's economic stagnation is not inevitable, and many of its biggest problems have identifiable solutions.
That's the central argument of economist and longtime Japan observer Richard Katz in this wide-ranging interview examining the structural and political forces holding back the Japanese economy.
From stagnant wages and the Bank of Japan's interest rate dilemma to the consequences of a weak yen and lessons from South Korea, Katz challenges longstanding assumptions about Japan's economic performance while outlining the reforms he believes could restore sustainable growth and improve living standards.
Katz has recently released a new book titled Raising Wages Will Revive Japan found only in Japanese at Amazon Japan.
Key Topics
Japan's widening wage and productivity gap: Real wages for typical Japanese workers remain around 1990 levels despite decades of productivity improvements, creating a fundamental imbalance in the economy.
The limitations of Japan's wage increases: The 2026 shuntō negotiations delivered nominal wage growth of 5.26%, but these increases cover only a small proportion of the workforce, leaving millions of employees behind.
Lifetime employment and unproductive businesses: Japan's traditional employment system limits competition for workers, while government support for struggling companies may be preventing labour from moving into more productive industries.
The Bank of Japan's difficult balancing act: Imported inflation continues to squeeze household budgets even as domestic consumption remains weak, complicating monetary policy and raising concerns about the consequences of higher interest rates.
Japan's government debt and economic stagnation: Rising government bond yields have prompted fears of a debt crisis, but Katz argues that the more serious danger is a prolonged deterioration in economic growth and living standards.
The unequal benefits of a weak yen: Currency depreciation supports major exporters and overseas corporate earnings but increases living costs for Japanese households, challenging the longstanding assumption that a weaker yen benefits the entire economy.
Japan's overlooked innovation problem: Poor compensation for PhD graduates and limited opportunities for advanced researchers threaten Japan's ability to turn scientific achievements into commercially successful technologies.
South Korea's contrasting economic performance: Despite sharing many of Japan's structural challenges, South Korea has achieved stronger wage growth and greater movement of workers into productive industries, offering an important comparison.
Political interests obstructing economic reform: Established business interests, agricultural protections and restrictions on renewable energy development illustrate the political barriers standing between Japan and potentially significant economic improvements.
The case for optimism about Japan's future: Growing mid-career recruitment, greater labour mobility and increasing demand for specialised skills provide encouraging signs, although Katz identifies sustained real wage growth across the entire workforce as the ultimate measure of recovery.
In February of 2025, Adam German of Patience Realty sat down with Richard Katz to discuss his then-latest book The Contest For Japan’s Economic Future. Click here to listen to that discussion as well as find links on where to purchase.
