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    Netherlands and Japan Said to Join U.S. in Curbing China’s Access to Chip Tech

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    A new agreement is expected to expand the reach of U.S. technology restrictions on China issued last year.WASHINGTON — The Netherlands and Japan, both makers of some of the world’s most advanced equipment for manufacturing semiconductors, agreed on Friday to join with the United States in barring some shipments of their most high-tech machinery to China, people familiar with the agreement said.The agreement, which followed high-level meetings with U.S. national security officials in Washington, will help expand the reach of sweeping restrictions issued unilaterally by the Biden administration in October on the kinds of semiconductor technology that can be shared with China.The countries did not publicly announce the agreement, because of its sensitivity, and details remain unclear. But the deal seems likely to put technology industries in the countries on a more even footing, preventing companies in Japan and the Netherlands from rushing in to claim market share in China that has been abandoned by U.S. firms. American companies have said that possibility would put them at a disadvantage.More on JapanMissing a Successor: An owner’s struggle to find someone to take over his thriving business illuminates the potentially devastating economic effects of an aging society.Tech Workers: Japanese companies are trying to lure highly educated Indians to fill a shortage of IT engineers. Can they make their country appealing to them?Hiroyuki Nishimura: This celebrity entrepreneur and author has become a voice for disenchanted young Japanese. What he talks about much less is his ownership of 4chan.A Policy Change: Japan’s central bank unexpectedly announced in December that it was adjusting its stance on bond purchases. This is why that matters.The White House and the Dutch government declined to comment. The Japanese government did not immediately respond to a request for comment.The United States imposed strict controls in October on the sale to China of both semiconductors and the machines used to make them, arguing that Beijing could use the technology for military purposes, like breaking American codes or guiding hypersonic missiles. But well before those restrictions were issued, the United States had been pressing the Netherlands and Japan to further limit the advanced technology they export to China.The October rules also clamped down on certain shipments to China from countries outside the United States. Using a novel regulation called the foreign direct product rule, the Biden administration barred companies that use American technology, software or inputs from selling certain advanced semiconductors to China. But these measures applied only to chips, not the machinery used to make them.Instead, the White House continued to press allies to pass restrictions limiting the sales of semiconductor manufacturing equipment by firms like the Dutch company ASML or Tokyo Electron in Japan. The White House argued that the sale of this advanced machinery to China created the danger that Beijing could one day make its own versions of the advanced products it could no longer buy from the United States.The negotiations, which are likely to continue, have had to overcome both commercial and logistical concerns. Like the Americans, the Dutch and Japanese were concerned that if they pulled out of the Chinese market, foreign competitors would take their place, said Emily Benson, a senior fellow at the Center for Strategic and International Relations, a Washington think tank. Over time, that “could impact their ability to maintain a technological edge over competitors,” she said.The Dutch government has already forbidden sales of its most advanced semiconductor machinery, called extreme ultraviolet lithography systems, to China. But the United States has encouraged the Dutch to also limit a slightly less advanced system, called deep ultraviolet lithography. The deal reached Friday includes at least some restrictions on that equipment, according to one person familiar with its terms.Governments have also faced questions about whether they possess the legal authority to issue restrictions like the United States, as well as extensive technical discussions about which technologies to restrict. Japan and the Netherlands will still likely require some time to make changes to their laws and regulations to put new restrictions in place, Ms. Benson added, and it could take months or years for restrictions in the three countries to mirror one another. More

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    Japan’s Business Owners Can’t Find Successors. This Man Is Giving His Away.

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    Hidekazu Yokoyama has spent three decades building a thriving logistics business on Japan’s snowy northern island of Hokkaido, an area that provides much of the country’s milk.Last year, he decided to give it all away.It was a radical solution for a problem that has become increasingly common in Japan, the world’s grayest society. As the country’s birthrate has plummeted and its population has grown older, the average age of business owners has risen to around 62. Nearly 60 percent of the country’s businesses report that they have no plan for what comes next.While Mr. Yokoyama, 73, felt too old to carry on much longer, quitting wasn’t an option: Too many farmers had come to depend on his company. “I definitely couldn’t abandon the business,” he said. But his children weren’t interested in running it. Neither were his employees. And few potential owners wanted to move to the remote, frozen north.So he placed a notice with a service that helps small-business owners in far-flung locales find someone to take over. The advertised sale price: zero yen.Mr. Yokoyama’s struggle symbolizes one of the most potentially devastating economic impacts of Japan’s aging society. It is inevitable that many small- and medium-size companies will go out of business as the population shrinks, but policymakers fear that the country could be hit by a surge in closures as aging owners retire en masse.In an apocalyptic 2019 presentation, Japan’s trade ministry projected that by 2025, around 630,000 profitable businesses could close up shop, costing the economy $165 billion and as many as 6.5 million jobs.Economic growth is already anemic, and the Japanese authorities have sprung into action in hopes of averting a catastrophe. Government offices have embarked on public relations campaigns to educate aging owners about options for continuing their businesses beyond their retirements and have set up service centers to help them find buyers. To sweeten the pot, the authorities have introduced large subsidies and tax breaks for new owners.Still, the challenges remain formidable. One of the biggest obstacles to finding a successor has been tradition, said Tsuneo Watanabe, a director of Nihon M&A Center, a company that specializes in finding buyers for valuable small- and medium-size enterprises. The company, founded in 1991, has become enormously lucrative, recording $359 million in revenue last year.Mr. Yokoyama plans to give away his land and equipment to a successor he has chosen.Noriko Hayashi for The New York TimesOne of Mr. Yokoyama’s workers.Noriko Hayashi for The New York TimesBut building that business has been a long process. In years past, small-business owners, particularly those who ran the country’s many decades- or even centuries-old companies, assumed that their children or a trusted employee would take over. They had no interest in selling their life’s work to a stranger, much less a competitor.More on Social Security and RetirementEarning Income After Retiring: Collecting Social Security while working can get complicated. Here are some key things to remember.An Uptick in Elder Poverty: Older Americans didn’t fare as well through the pandemic. But longer-term trends aren’t moving in their favor, either.Medicare Costs: Low-income Americans on Medicare can get assistance paying their premiums and other expenses. This is how to apply.Claiming Social Security: Looking to make the most of this benefit? These online tools can help you figure out your income needs and when to file.Mergers and acquisitions “weren’t well regarded. A lot of people felt that it was better to shut the company down than sell it,” Mr. Watanabe said. Perceptions of the industry have improved over the years, but there are “still many businesspeople who aren’t even aware that M&A is an option,” he added.While the market has found buyers for the businesses most ripe for the picking, it can seem nearly impossible for many small but economically vital companies to find someone to take over.In 2021, government help centers and the top five merger-and-acquisitions services found buyers for only 2,413 businesses, according to Japan’s trade ministry. Another 44,000 were abandoned. Over 55 percent of those were still profitable when they closed.Many of those businesses were in small towns and cities, where the succession problem is a potentially existential threat. The collapse of a business, whether a major local employer or a village’s only grocery store, can make it even harder for those places to survive the constant attrition of aging populations and urban flight that is hollowing out the countryside.After a government-run matching program failed to find someone to take over for Mr. Yokoyama, a bank suggested that he turn to Relay, a company based in Kyushu, Japan’s southernmost main island.Hay stored in a warehouse on the Yokoyama land.Noriko Hayashi for The New York TimesAn abandoned cowshed.Noriko Hayashi for The New York TimesRelay has differentiated itself by appealing to potential buyers’ sense of community and purpose. Its listings, featuring beaming proprietors in front of sushi shops and bucolic fields, are engineered to appeal to harried urbanites dreaming of a different lifestyle.The company’s task in Mr. Yokoyama’s case wasn’t easy. For most Japanese, the town where his business is situated, Monbetsu, which has around 20,000 people and is shrinking, might as well be the North Pole. The only industries are fishing and farming, and they largely go into hibernation as the days grow short and snow piles up to roof eaves. In deep winter, some tourists come to eat salmon roe and scallops and see the ice floes that lock in the city’s modest port.A street full of 1980s-era cabarets and restaurants is a snapshot of a more prosperous time when young fishermen gathered to let off steam and spend big paychecks. Today, faded posters peel off abandoned storefronts. The town’s biggest building is a new hospital.In 2001, Monbetsu constructed a new elementary school building just around the corner from Mr. Yokoyama’s company. It closed after just 10 years.In times past, the classrooms would have been filled with the grandchildren of local dairy farmers. But their own children have now mostly moved to cities in search of higher-paying, less onerous work.With no obvious successors, the farms have folded one after another. Decades-high inflation brought on by the pandemic and Russia’s war in Ukraine has pushed dozens of holdouts into early retirement.Mr. Yokoyama’s employees are skeptical about his succession plan.Noriko Hayashi for The New York TimesThe workers are mostly in their 50s and 60s.Noriko Hayashi for The New York TimesAs local farmers have aged and their profits thinned, more of them have come to depend on Mr. Yokoyama for tasks like harvesting hay and clearing snow. His days start at 4 a.m. and end at 7 in the evening. He sleeps in a small room behind his office.It would be “extremely difficult” if his business folded, said Isao Ikeno, the manager of a nearby dairy cooperative that has turned heavily to automation as workers have become harder to find.On the cooperative’s farm, 17 employees tend to 3,000 head of cattle, and Mr. Yokoyama’s company fills in the gaps. No other area businesses can provide the services, Mr. Ikeno said.Mr. Yokoyama began contemplating retirement about six years ago. But it wasn’t clear what would happen to the business.While he had taken on a little over half a million dollars in debt, years of generous economic stimulus policies have kept interest rates at rock bottom, easing the burden, and the company’s annual profit margin was around 30 percent.The ad he placed on Relay acknowledged that the job was hard, but it said that no experience was needed. The best candidate would be “young and ready to work.”Whoever was chosen would take over the debts, but also inherit all of the business’s equipment and nearly 150 acres of prime farmland and forest. Mr. Yokoyama’s children will get nothing.“I told them that if you want to take it over, I’d leave it to you, but if you don’t want to do it, I’m giving it all to the next guy,” he said.Thirty inquiries poured in. Among those who expressed interest were a couple and a representative of a company that planned to expand. Mr. Yokoyama settled on a dark horse, 26-year-old Kai Fujisawa.A friend had showed Mr. Fujisawa the ad on Relay, and Mr. Fujisawa immediately jumped in a car and showed up on Mr. Yokoyama’s doorstep, impressing him with his youth and enthusiasm.Kai Fujisawa, Mr. Yokoyama’s potential successor.Noriko Hayashi for The New York TimesStill, the transition hasn’t been smooth. Mr. Yokoyama is not entirely convinced that Mr. Fujisawa is the right person for the job. The learning curve is steeper than either of them had imagined, and Mr. Yokoyama’s grizzled, chain-smoking employees are skeptical that Mr. Fujisawa will be able to live up to the boss’s reputation.Most of the company’s 17 employees are in their 50s and 60s, and it’s not clear where Mr. Fujisawa will find people to replace them as they retire.“There’s a lot of pressure,” Mr. Fujisawa said. But “when I came here, I was prepared to do this for the rest of my life.” More

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    Why Japan’s Sudden Shift on Bond Purchases Dealt a Global Jolt

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    The world has relied on ultralow interest rates in Japan. What will happen if they rise?Japan is the world’s largest creditor. At the end of 2021, it held roughly $3.2 trillion in foreign assets, 30 percent more than No. 2 Germany. As of October, it owned over a trillion dollars of U.S. government debt, more than China. Japanese banks are the world’s largest cross-border lenders, with nearly $4.8 trillion in claims in other countries.Late last month, the world got an unexpected reminder of how integral Japan is to the global economy, when the country’s central bank unexpectedly announced that it was adjusting its stance on bond purchases.To those unversed in the intricacies of monetary policy, the significance of Japan’s decision to raise the ceiling on its 10-year bond yields may not have been immediately clear. But for the finance industry, the surprising change raised expectations that the days of rock-bottom Japanese interest rates could be numbered — potentially further squeezing global credit markets that were already tightening as the world economy slows.Since this summer, the Bank of Japan has been an outlier, keeping its interest rates ultralow even as other central banks raced to keep up with the Federal Reserve, which has ratcheted up lending costs in an effort to tame high inflation.As global rates have diverged from those in Japan, the value of the yen has fallen as investors sought better returns elsewhere. That has put pressure on the Bank of Japan to shift the world’s third-largest economy away from its decade-long commitment to cheap money, a policy known as monetary easing.Japan’s deep integration into global financial networks means that there is a lot of money riding on the timing of any move away from that policy, and investors have spent years fruitlessly waiting for a sign.As of mid-December, the overwhelming expectation was that the bank would hold off on any changes until next spring, when Haruhiko Kuroda, the Bank of Japan’s governor and an architect of its current policies, is set to step down.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Japan Bounces Back to Economic Growth as Coronavirus Fears Recede

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    A public weary of virus precautions pushed up consumption of goods and services, but the longer-term picture is uncertain as the global economy weakens.TOKYO — Restaurants are full. Malls are teeming. People are traveling. And Japan’s economy has begun to grow again as consumers, fatigued from more than two years of the pandemic, moved away from precautions that have kept coronavirus infections at among the lowest levels of any wealthy country.Lockdowns in China, soaring inflation and brutally high energy prices could not suppress Japan’s economic expansion as domestic consumption of goods and services shot up in the second three months of the year. The country’s economy, the third largest after the United States and China, grew at an annualized rate of 2.2 percent during that period, government data showed on Monday.The second-quarter result followed growth of 0 percent — revised from an initial reading of a 1 percent decline — during the first three months of the year, when consumers retreated to their homes in the face of the rapid spread of the Omicron variant.After that initial Omicron wave burned out, shoppers and domestic travelers poured back onto the streets. Case numbers then quickly galloped back to record highs for Japan, but this time the public — highly vaccinated and tired of self-restraint — has reacted less fearfully, said Izumi Devalier, head of Japan economics at Bank of America.“After the Omicron wave ended, we had a very nice jump in mobility, lots of catch-up spending in categories like restaurant and travel,” she said.The new growth report indicates that Japan’s economy may finally be back on track after more than two years of yo-yoing between growth and contraction. Still, the country remains an economic “laggard” compared with other wealthy nations, Ms. Devalier said, adding that consumers, especially older people, “are still sensitive to Covid risks.”As that sensitivity has slowly declined over time, she said, “we have had this very gradual recovery and normalization from Covid.”The second-quarter growth came despite stiff headwinds, particularly for Japan’s small- and medium-size enterprises. China’s Covid lockdowns have made it hard for retailers to stock in-demand products like air-conditioners, and for manufacturers to procure some critical components for their goods.A weak yen and higher inflation have also weighed on companies. Over the last year, the Japanese currency has lost more than 20 percent of its value against the dollar. While that has been good for exporters — whose products have grown cheaper for foreign customers — it has driven up prices of imports, which have already become more expensive because of shortages and supply chain disruptions caused by the pandemic and Russia’s war in Ukraine.While inflation in Japan — at around 2 percent in June — is still much lower than in many other countries, it has forced some companies to substantially raise prices for the first time in years, potentially dampening demand from consumers accustomed to paying the same amounts year after year.Japan faces other challenges both at home and abroad. Small- and medium-size enterprises in particular are likely to struggle as pandemic subsidies come to an end and foot traffic to their businesses remains below prepandemic levels.Additionally, geopolitical tensions are creating greater uncertainty for Japan’s key industries. Frictions between the United States and China over Speaker Nancy Pelosi’s visit to Taiwan this month have raised concerns among Japanese policymakers about possible disruptions to trade. Taiwan is Japan’s fourth-largest trade partner and a critical producer of semiconductors — essential components for Japan’s large automobile and electronics industries.As for Japan’s overall economic outlook, “short term, momentum is pretty good, but beyond that, we are actually quite cautious,” Ms. Devalier said.At home, she expects consumption to slow as people adjust to the new normal of living with the pandemic and their enthusiasm for spending dims. Wage growth, which has been stagnant for years, is falling behind inflation, which is likely to affect spending. And, she said, “for manufacturing and exports we expect a slowdown in momentum reflecting the fact that we expect global growth to be weaker.”Even under ideal conditions, Japan’s domestic consumption is at least a year away from returning to prepandemic levels, said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting.“Next year, we should be in a situation where it’s not necessary to worry about Covid infections and there are no restrictions whatsoever on economic activity,” he said.By then, he said, Japan will have most likely relaxed restrictions on tourism and business travel from abroad, which have been an additional drag on its economic performance.But with Omicron cases still climbing, fully returning to normal life this year is “impossible,” he said. More

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    Japan’s Economy Shrank 1 Percent as Consumers Fled Covid

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    TOKYO — Last December, after two years of stop-and-go growth, Japan’s economic engine seemed like it might finally be revving up. Covid cases were practically nonexistent. Consumers were back on the town, shopping, eating out, traveling. The year 2021 ended on a high note, with the country’s economy expanding on an annual basis for the first time in three years.But the Omicron variant of the coronavirus, geopolitical turmoil and supply chain snarls have once again set back Japan’s fragile economic recovery. In the first three months of the year, the country’s economy, the world’s third largest after the United States and China, shrank at an annualized rate of 1 percent, government data showed on Wednesday. A combination of factors contributed to the decline in growth. In January, Japan had put into place new emergency measures as coronavirus case numbers, driven up by Omicron, moved toward the highest levels of the pandemic. In February, Russia invaded Ukraine, spiking energy prices. And that was before China, Japan’s largest export market and a key supplier of parts and labor to its manufacturers, imposed new lockdowns in Shanghai, throwing supply chains into chaos.The contraction has not been as “extreme” as previous economic setbacks thanks to high levels of vaccine uptake and less wide-ranging emergency measures than during previous waves of the coronavirus, according to Shinichiro Kobayashi, principal economist at the Mitsubishi UFJ Research Institute.But Japan’s economic recovery from the enormous damage done by the pandemic has also not been as fast as the United States, China or the European Union, he said.Understand the Supply Chain CrisisThe Origins of the Crisis: The pandemic created worldwide economic turmoil. We broke down how it happened.Explaining the Shortages: Why is this happening? When will it end? Here are some answers to your questions.A New Normal?: The chaos at ports, warehouses and retailers will probably persist through 2022, and perhaps even longer.A Key Factor in Inflation: In the U.S., inflation is hitting its highest level in decades. Supply chain issues play a big role.“The pace has been slow,” he said, adding that Japan was the “only country among major economies that hasn’t recovered.”Growth is likely to bounce back strongly in the second quarter, analysts said, a pattern that has defined Japan’s economy during the pandemic: Demand has waxed as Covid cases have waned, and vice versa.Still, growth in the coming months will face some tough challenges. The pandemic and the war in Ukraine have fueled big increases in the costs of food and energy in Japan. And moves by the U.S. Federal Reserve to tackle high inflation have caused the value of the Japanese currency, the yen, to plummet. That has driven up costs in the resource-poor country, which is highly dependent on imports for food, fuel and raw materials.Inflation in the country, while still modest, is rising at its fastest pace in years, with consumer prices in Tokyo increasing by 2.5 percent in April. And over the last year, prices for producers have shot up 10 percent, the highest levels since 1980.China’s draconian efforts to keep Covid under control are likely to create additional disruptions for Japanese companies that manufacture, source parts and export their goods there.How the Supply Chain Crisis UnfoldedCard 1 of 9The pandemic sparked the problem. More

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    Toyota Topped G.M. in U.S. Car Sales in 2021

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    After struggling to produce cars because of a global computer chip shortage, automakers are trying to move quickly to making electric vehicles.Toyota Motor unseated General Motors as the top-selling automaker in the United States last year, becoming the first manufacturer based outside the country to achieve that feat in the industry’s nearly 120-year history.That milestone underlines the changes shaking automakers, which face strong competition and external forces as they move into electric vehicles. And it came in a tumultuous and strange year in which automakers contended with an accelerating shift to electric vehicles and struggled with profound manufacturing challenges. New car sales have been damped by a severe shortage of computer chips that forced automakers to idle plants even though demand for cars has been incredibly robust.G.M., Ford Motor and Stellantis, the automaker created by the merger of Fiat Chrysler and Peugeot, produced and sold fewer cars than they had hoped to in 2021 because they were hit hard by the chip shortage. Toyota was not hurt as much.In addition to that shortage, the coronavirus pandemic and related supply-chain problems depressed sales while driving up the prices of new and used cars, sometimes to dizzying heights. Auto manufacturers sold just under 15 million new vehicles in 2021, according to estimates by Cox Automotive, which tracks the industry. That is 2.5 percent more than in 2020 but well short of the 17 million vehicles the industry usually sold in a year before the pandemic took hold.G.M. said on Tuesday that its U.S. sales slumped 13 percent in 2021, to 2.2 million trucks and cars. Toyota had access to more chips because it set aside larger stockpiles of parts after an earthquake and tsunami in Japan knocked out production of several key components in 2011. Its 2021 sales rose more than 10 percent, to 2.3 million.“The dominance of the U.S. automakers of the U.S. market is just over,” said Erik Gordon, a business professor at the University of Michigan who follows the auto industry. “Toyota might not beat G.M. again this year, but the fact that they did it is symbolic of how the industry changed. No U.S. automaker can think of themselves as entitled to market share just because they’re American.”Ford is expected to finish third when the company releases sales data on Wednesday.The shortage of chips stems from the beginning of the pandemic, when auto plants around the world closed to prevent the spread of the coronavirus. At the same time, sales of computers and other consumer electronics took off. When automakers resumed production, they found fewer chips available to them.Despite weak new-vehicle sales, automakers and dealers alike have been ringing up hefty profits because they have been able to raise prices.“Sales volumes are down but our margins are up and expenses are down,” said Rick Ricart, whose family owns Ford, Hyundai, Kia and other dealerships around Columbus, Ohio. “We barely had any inventory cost now. Cars arrive on the truck and they’re already sold. They’re gone within 24 to 48 hours.”Automakers are also contending with the transition to electric cars and trucks. Many companies are spending tens of billions of dollars designing battery-powered models and building plants to produce them. They are racing to catch up to Tesla, which sells a large majority of electric vehicles now.But most established automakers are unlikely to gain ground in U.S. electric vehicle sales this year because they are not in a position to produce many tens of thousands of such cars for at least another year or two.And Tesla, which was founded in 2003, is not standing still. After reporting a nearly 90 percent jump in global sales last year, to just shy of one million, the company plans to start mass production at two new factories this year, near Austin, Texas, and Berlin. It has been less affected by the chip shortage because it was able to switch to types of chips that are more readily available.The electric-car maker does not break out sales by country, but Cox Automotive estimated that it sold more than 330,000 in the United States, or roughly as many vehicles as Mercedes-Benz and BMW each sold here.Ford is perhaps the only major automaker that could pose a serious competitive threat to Tesla this year. This spring, Ford plans to start selling an electric version of its F-150 pickup truck, the top-selling vehicle in the United States. The company has taken more than 200,000 reservations for that truck, the F-150 Lightning, and hopes to produce more than 50,000 this year. It is increasing production at a plant near Detroit to build 80,000 in 2023 and up to 150,000 in 2024.“The F-150 is the most important franchise in our company,” Kumar Galhotra, president of Ford’s Americas and international markets group, said in an interview. “The F-150 Lightning shows how serious our commitment is to the E.V. market.”Ford has been selling a popular electric sport-utility vehicle, the Mustang Mach E, for nearly a year. It said Tuesday that it aimed to increase production of the Mach E to 200,000 vehicles a year by 2023.Other automakers are planning to produce relatively modest numbers of electric cars this year because they and their suppliers are still gearing up to build factories and produce batteries and other components. G.M. has set a goal of producing only electric vehicles by 2035, and on Wednesday it will unveil a battery-powered Chevrolet Silverado pickup truck at the Consumer Electronics Show. But the electric Silverado isn’t expected to go into production until 2023.The Coronavirus Pandemic: Key Things to KnowCard 1 of 3The global surge. More

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    Inflation? Not in Japan. And That Could Hold a Warning for the U.S.

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    If the United States’ current bout of rising prices soon eases, its economy could fall back into the cycle of weak inflation that preceded the pandemic — a situation much like Japan’s.TOKYO — In the United States, everyone is talking about inflation. The country’s reopening from the coronavirus pandemic has unleashed pent-up demand for everything from raw materials like lumber to secondhand goods like used cars, pushing up prices at the fastest clip in over a decade.Japan, however, is having the opposite problem. Consumers are paying less for many goods, from Uniqlo parkas to steaming-hot bowls of ramen. While in the United States average prices have jumped by 5.4 percent in the past year, the Japanese economy has faced deflationary pressure, with prices dipping by 0.1 percent in May from the previous year.To some extent, the situation in Japan can be explained by its continued struggles with the coronavirus, which have kept shoppers at home. But deeper forces are also at play. Before the pandemic, prices outside the volatile energy and food sectors had barely budged for years, as Japan never came close to meeting its longtime goal of 2 percent inflation.It wasn’t for lack of trying. Over nearly a decade, Japanese policymakers have wielded nearly every trick in the economist’s playbook in an effort to coax prices higher. They have juiced the economy with cheap money, spent huge sums on fiscal stimulus like public works, and lowered interest rates to levels that made borrowing nearly free.But as Japan has learned the hard way, low inflation can be an economic quagmire. And that experience carries a warning for the United States if its current bout of inflation eases, as many economists expect, and its economy falls back into the cycle of weak inflation that preceded the pandemic.“Most economists, me included, are pretty confident that the Fed knows how to bring inflation down,” including by raising interest rates, said Joshua Hausman, an associate professor of public policy and economics at the University of Michigan who has studied Japan’s economy.However, “it’s much less clear, partly because of Japan’s experience, that we’re very good at bringing inflation up,” he added.For consumers, falling prices sound like a good thing. But from the perspective of most economists, they are a problem.Consumers are paying less for many goods, from Uniqlo parkas to steaming-hot bowls of ramen.Kazuhiro Nogi/Agence France-Presse — Getty ImagesInflation, they like to say, greases the economy’s gears. In small amounts, it increases corporate profits and wages, stimulating growth. It can also reduce the burden of debt, bringing down the relative costs of college loans and mortgages.Japan’s inability to lift inflation is “one of the biggest unsolved challenges in the profession,” said Mark Gertler, a professor of economics at New York University who has studied the issue.One popular explanation for the country’s trouble is that consumers’ expectations of low prices have become so entrenched that it’s basically impossible for companies to raise prices. Economists also point to weakening demand caused by Japan’s aging population, as well as globalization, with cheap, plentiful labor effectively keeping costs low for consumers in developed countries.The picture once looked very different. In the mid-1970s, Japan had some of the highest inflation rates in the world, approaching 25 percent.It wasn’t alone. Runaway prices set off by the 1970s oil crisis defined the era, including for a whole generation of economists who were groomed to believe that the most likely threat to financial stability was rapid inflation and that interest rates were the best tool to combat it.But by the early 1990s, Japan began experiencing a different issue. An economic bubble, fueled by a soaring stock market and rampant property speculation, burst. Prices began to fall.Japan attacked the problem with innovative policies, including using negative interest rates to encourage spending and injecting money into the economy through large-scale asset purchases, a policy known as quantitative easing.Shops and restaurants closed during a state of emergency in Osaka, Japan, in May. To some extent the situation in Japan can be explained by its continued struggles with the coronavirus.Carl Court/Getty ImagesIt seemed to do little good. Still, economists at the time saw Japan’s experience not as a warning to the world, but as an anomaly produced by bad policy choices and cultural quirks.That began to change with the financial crisis of 2008, when inflation rates around the world plummeted and other central banks adopted quantitative easing.The problem has been most notable in Europe, where inflation has averaged 1.2 percent since 2009, economic growth has been weak and some interest rates have been negative for years. During the same period, U.S. inflation averaged just below 2 percent. The Federal Reserve has kept its main interest rate at close to zero since March 2020.Some prominent economists viewed the low inflation as a sign that the U.S. and E.U. economies might be on the brink of so-called secular stagnation, a condition marked by low inflation, low interest rates and sluggish growth.They have worried that those trends will deepen as both economies begin to gray, potentially reducing demand and pushing up savings rates.In 2013, under newly elected Prime Minister Shinzo Abe, Japan began its most ambitious effort to tackle its weak economic growth and low inflation.The government embarked on a grand experiment of huge monetary and fiscal stimulus, buying enormous quantities of equities and lowering interest rates in hopes of encouraging borrowing and putting more money into the economy. As the supply of cash increased, the thinking went, its relative value would decline, effectively driving up prices. Flush with money, consumers and companies alike would spend more. Voilà, inflation.Former Prime Minister Shinzo Abe leaving his last cabinet meeting in Tokyo last year. Under Mr. Abe, Japan began an ambitious but unsuccessful effort to tackle its weak inflation.Kazuhiro Nogi/Agence France-Presse — Getty ImagesTo encourage spending, Japan adopted a policy, known as forward guidance, aimed at convincing people that prices would go up as it pledged to do everything in its power to achieve its inflation target of 2 percent.But the government’s efforts at persuasion fell short, so there was little urgency to spend, said Hiroshi Nakaso, a former deputy governor of the Bank of Japan and head of the Daiwa Institute of Research.Japan found itself in a vicious circle, said Takatoshi Ito, a professor of international and public affairs at Columbia University, who served on Japan’s Council on Economic and Fiscal Policy.Consumers came to expect “stable prices and zero inflation,” he said, adding that as a result, “companies are afraid of raising prices, because that would attract attention, and consumers may revolt.”The sluggish economy made companies reluctant to raise wages, he said, “and because real wages didn’t go up, probably consumption didn’t go up. So there was no increase for demand for products and services.”As inflation hardly moved, some economists wondered if Japan’s stimulus had been too conservative, even as it racked up one of the world’s largest debt burdens.Policymakers, citing a need to pay off the country’s debts and meet the growing costs of caring for an aging population, hedged against the spending by twice raising the country’s consumption tax, apparently weakening demand.A bus station in Tokyo. Economists point to Japan’s aging population as one reason for weakening demand.Charly Triballeau/Agence France-Presse — Getty ImagesIn the end, Mr. Abe’s experiment, known as Abenomics, may not have been as successful as hoped. But it has informed policymakers’ response to the pandemic, said Gene Park, a professor of political science at Loyola Marymount University in Los Angeles who studies Japan’s monetary policy.One takeaway, he said, is that governments could spend more than they had ever thought possible without setting off a rapid rise in inflation. Another is that they might have to spend considerably more than they had once considered necessary to stimulate growth.Japan “has given the U.S. more freedom to experiment with bolder measures,” Mr. Park said.During the pandemic, Japan, too, has tried to apply the lessons learned since 2013.The government has paid shops and restaurants to stay closed, handed out cash to every person in the country, and financed zero-interest loans for struggling businesses. Prices fell anyway. That was partly at the behest of the government itself, which recently pressured telecom companies to lower mobile phone fees it deemed too high. Most Japanese consumers are also still waiting to be vaccinated against the coronavirus, holding back economic activity.Even after the pandemic wanes, however, Japan’s inflation rates are likely to stay low, said Sayuri Shirai, an economics professor at Keio University in Tokyo and a former board member of the Bank of Japan.After all, the primary problem remains unchanged: No one is really sure why prices have stagnated.“The central bank probably doesn’t want to say that they cannot control inflation,” Ms. Shirai said. “Therefore, this issue has just been left without a clear discussion.” More

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    Ezra F. Vogel, Eminent Scholar of China and Japan, Dies at 90

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyEzra F. Vogel, Eminent Scholar of China and Japan, Dies at 90A longtime scholar at Harvard, Professor Vogel wrote books that helped shape how the world viewed the two ascendant economic powers.Ezra Vogel’s writings over six decades established him as a giant in the study of China and Japan and earned him wide-ranging influence.Credit…Ben RosserPublished More