What are the major risks for the Japanese economy in 2020 and beyond?

Japan has been a relative oasis of calm amid the global turmoil. The lack of major drama was undoubtedly a source of strength for Tokyo. But looking ahead, what Japan needs is to capitalize on that stability and take risks to address very real longer-term challenges.

The fact of the matter is that Japan’s status quo is a weakness as it is a strength. Politically, the latest election results have highlighted the inability of opposition parties to provide compelling alternative visions for economic growth, social stability, and defense, rather than demonstrating active support for the ruling Liberal Democratic Party.

The inability of the current government to offer daring solutions to the multitude of issues that stem from a graying society must be accounted for.

The fact that the country’s population has been aging rapidly on the one hand, and the fertility rate has been on a long-term decline on the other, has been on the agenda for the past two decades. It may be unenviable, but the reality is that Japan is at the forefront of the new frontier of a super-aging world, and countries facing a similar situation are looking to Tokyo for solutions to some of the problems. So far, however, Japan has not been a model nation for dealing with that challenge.

Certainly, Tokyo has not been as successful in investing in human capital as part of the solution for a shrinking population as it could be. To be fair, Abe was able to highlight the need to boost the power of women when he became prime minister for the second time in 2012. Still, for all the rhetoric of womenomics and encouraging women to “shine,” whatever that may mean, there has been precious little to show for it.

The fact that Japan has actually fallen in the latest gender gap ranking by the World Economic Forum to 121st place from 110th is a clear indication that the voice of women in the Japanese corridors of power is alarmingly low.

Clearly it is not enough for policymakers to note the need for more women to be in positions of influence, and it may well be that having better female representation in public policy and in the corporate world would lead to new ways for dealing with persisting challenges, including a graying, shrinking population.

New approaches to old problems will be needed on the diplomatic front, too, not least as friction with South Korea becomes increasingly entrenched. With 2020 marking the 75th anniversary of the end of World War II, the politicization of historical memory will only intensify across East Asia, and reiterating the need to adhere to the 1965 bilateral treaty is unlikely to lead to a breakthrough, regardless of the validity of that position.

Looking ahead, the uncertainties that prevailed worldwide in 2019 may well intensify in 2020. That instability actually provides an opportunity for Japan to step up its role as a global stabilizer, at least until Abe’s term as prime minister ends. Japan should, however, aim to be a stabilizing force amid global turmoil even beyond the Abe government. Even though Japan’s economic ranking in terms of GDP growth is likely to slide further in the coming years, what Tokyo can strive for is a country that can actually punch above its weight both politically and economically because of what it represents, not unlike the United Kingdom prior to the Brexit debacle.

The new year will be a window of opportunity for Japan to cement its position as a nation committed to the rule of law, free-market and multilateralism. Tokyo will, however, need to ensure that its own political system can thrive after Abe. That should also be seen as an opportunity to readjust some of the country’s old entrenched values and ensure that Japan can be seen as an attractive global leader that reflects the aspirations of the 21st century.