% annual growth rate:
|1981 – 2018||3.95%||1.86%|
|1981 – 1990||9.23%||4.64%|
|1991 – 2000||2.50%||1.14%|
|2001 – 2010||1.07%||0.80%|
|Eight years to 2018||2.77%||0.60%|
Sources: M3 from the bank of Japan website and nominal GDP from IMF database, as at May 2019.
The medium-term relationship between money and nominal GDP growth in Japan, 1981-2018
Five-year moving averages of annual % changes, with 1983 being the start of the first five-year period
Comment on monetary trends in Japan
In its hyper-growth period, in the 25 years to the late 1970s, Japan often recorded growth in the quantity of money of 20% or so, rather like China in its more recent post-Mao boom. Nominal GDP growth was also rapid, although – again as with China in the last two or three decades – at a somewhat slower pace than that of money. Rather high money growth continued into the 1980s, although the typical growth rate of real output dropped back towards 4% a year.
A marked change in the pattern has occurred since the bursting of the late-1980s asset price bubble in the early 1990s. The banks had a heavy burden of bad debts because loans had been extended to weak and often fraudulent borrowers, and in many cases would have been insolvent if forced to write down loans to their true value. Without a cushion of excess capital, the banks stopped growing their balance sheets. Broad money growth fell to 2.4% a year in the 1990s and to a mere 1.1% a year in the first decade of the 21st century. The change in nominal GDP was correspondingly weaker and, according to the IMF database, nominal GDP went down – if only fractionally – in several years. When decades are compared, the symmetry between the money and nominal GDP movements is impressive. Japan’s experience is fully consistent with the monetary theory of national income determination. The current fad for ‘Abenomics’ – with its supposed three arrows of economic recovery – has included a programme of ‘quantitative easing’, whereby central bank asset purchases are intended to boost money growth, but by targeting the monetary base rather than broad money, these measures have resulted in only a modest boost to the wider economy.