It could not be a cake walk for him now that he has got what he has been craving for long. For three decades, Japan has been lagging behind. Known as the lost decades, Japan was witnessing deflation —falling prices— since the 1990s. The economy showed little growth and there was generally what people called the “sinking feeling”.

The mother of all Japan’s problems is its falling population, though that is not unique for Japan alone. Most of the developed world is now seeing shrinking population; only Japan’s is a degree more acute. Villages have been abandoned, with population shrinking, kindergarten schools closed down for want of pupils and factories could not get additional hands.

But the pitch has been queered for Japan by the country’s reluctance to allow immigration. Japan’s population has been boringly homogeneous. Only now, under the pressure of overall shrinkage, Japan is allowing some immigration. Some people have been migrating to Japan from nearby China. But that is too small and could be halted as China itself faces shrinking population.

A new government cannot really reverse the population trends. These work themselves out over a very long term. However, policy changes could bring about relief. In Japan, close to 30% of the population is over 60. Their pension and medical cares would eat up a good part of the society’s income.

But a more relaxed immigration policy can mitigate the shortages of working hands. Besides, Japan has to change its attitude towards women, who still now face gross discrimination. Larger participation of women in work could also bring about some relief. But, then some of the recent governments have been harping more on women’s role in maintaining reproduction,

Among the more pressing economic issues is the one of stagnant prices, as already referred to. Prices have mostly fallen or have risen marginally by just about 0.3% a year. Against this striking sluggishness, Bank of Japan had pegged its inflation target at 2%. To encourage price rise by encouraging demand, the central bank had lowered its interest rate to levels hardly seen elsewhere. Bank of Japan (BoJ) had pegged its policy rates at negative regions for years and yet prices did not rise.

However, the basic macroeconomic factors seem to be changing at last. The prices have started rising again at a snail pace mainly as a result of supply shocks due to geopolitical uncertainties. Though not quite at BoJ target, prices are rising by over 1% and people are expecting the prices to rise in the medium to long term. Thus, there is some inflationary expectations among the people and the central bank is celebrating that.

However, the central has not immediately joked up interest rates to fight inflation seriously. After bringing the interest rates from extra-accommodative stance, the rate was brought into positive territories two months back. However, that had caused a sensation in the stock market and the central appears to be much more cautious about jacking up interest rates.

Japanese workers are also showing some changes. Unlike in the past, young workers are talking of changing their jobs to earn more rather than sticking on the age old practice of life-long employment at the same company. This is a offshoot of the queer demographics.

As businesses are facing shortages of working hands, they are offering higher wages. Until now, the wage growth in Japan have been tardy and worked as a depressing sentiment. This could hardly encourage higher consumption and thus growth. Now that the wages are rising once again, and another round of industry negotiation is in the offing, there is hope that Japan will witness widespread wage rise.

Faced with these compulsions, Japanese businesses are once again planning to make fresh investments. New investments are pouring into Japan from overseas as well. There is a report that with Chinese treats mounting to Taiwan, world’s biggest industrial chip maker —TSMC— is making a multi-billion dollar investment in a brand new chip factory in Japan.

One area where investment is booming is the defence-industrial complex. Japan had shined from making strategic investments in key defence production under its staunchly pacific stance. Hostilities from neighbouring China and North Korea, Russia’s more threatening tones and skirmishes in the South China Sea have led to changes in Japan’s attitude towards defence and domestic production capabilities of key defence products.

Japan is turning its attention towards production of high capability aircraft to ships, missiles and ammunition. High technology and precision defence items are slated to be manufactured at the homebase.

Years of growth and prosperity had made Japan the home of high finance. Japan has a huge corpus of investible resources. Being an aged economy, the savings rate of people are high. These investible funds are seeking avenues of investment. No wonder that Japan is one of the largest foreign direct investors.. Now a substantial portion of that is seeking deployment at home. Companies are investing in creation fresh high end capacity.

With such changes on the ground, Japan’s new government could play a critical part in directing the growth of the economy. Earlier, Shinzo Abe had played a critical role in bringing Japan out of its morass of deflation and stagnation. He had limited success.

Maybe, already the forces of change under way, the new prime minister, Shigeru Ishiba would project these latest growth factors with greater robustness. It will call for deft handling of the policy parameters. (IPA Service)