Turning Japanese

Executive Summary

There are moments in history when the patterns are so familiar, the signs so obvious, that it’s almost painful to watch them be ignored.

Not because the outcomes are certain—but because the decisions being made suggest the lessons of the past were never learned.

Or worse, were never even studied.

What do you call it when the most important economic decisions of a generation are being made under assumptions that have already failed once before? What happens when an entire system is built atop pillars that appear stable—until the slightest shift reveals they were hollow all along?

Some patterns don’t just rhyme. They repeat with frightening fidelity.

There was a time, not long ago, when another major economy stood at the peak of its power. Its cities gleamed, its stock market soared, and its property market defied gravity. Policymakers believed they had unlocked a new paradigm. Growth was structural, inevitable, unstoppable—until, suddenly, it wasn’t.

The fall wasn’t a crash so much as a fade—a slow, grinding erosion of wealth, confidence, and vitality that stretched not for quarters or years, but for decades.

That was Japan.

And for those who remember the early 1990s, the echoes now appearing elsewhere are impossible to ignore.

It began the same way. Asset prices peaked. Property and equity valuations lost touch with reality. Households, once flush with paper wealth, began to pull back. Confidence shifted. And what started as a sharp correction became something more enduring—a persistent, policy-resistant drag on growth, consumption, and investment. To this day, Japan’s real estate market has not recovered to its 1989 highs. Its equity market only recently did.

But it wasn’t just a balance sheet problem. It was a demographic one. Japan’s aging population accelerated the slowdown. Towns emptied. Birth rates fell. Entire regions faded from relevance. And with each passing year, the deflationary forces grew stronger—and harder to reverse.

There is another large economy today facing an eerily familiar path. One whose demographics are deteriorating even faster. One whose debt levels have already surpassed the levels Japan reached when its decline began. One whose property market, long seen as untouchable, is unraveling in real time.

And one whose policy response, so far, echoes the same hesitancy, the same reluctance, the same misplaced hope that the problem might solve itself.

Much of the world remains fixated on inflation. The headlines, the forecasts, the policy debates—they’re all still centered around rising prices.

But in this particular economy, the pressure is moving in the opposite direction. It’s not inflation that’s the growing threat—it’s deflation. And while few are watching for it, the signs are already there: falling home prices, cautious consumers, deteriorating confidence, and tightening credit conditions. It’s a quiet drag, not a sudden rupture. And that’s what makes it so dangerous.

The implications are vast. In this economy, consumer behavior is changing. Property is no longer a reliable store of wealth. Developers are defaulting. Capital is no longer flowing in—it’s flowing out.

Diplomatically, the posture has shifted from cooperation to confrontation. The global order that once enabled its rise is now receding. And unlike Japan, which faced its internal challenges in a world eager to see it succeed, this nation is encountering headwinds on nearly every front.

Its model of export-driven growth is increasingly incompatible with a world fragmenting along geopolitical lines. Supply chains are rerouting. Trust is eroding. And the infrastructure built to serve a rising population is now serving a declining one. Resource allocation is beginning to resemble what Japan experienced three decades ago—massive spending, diminishing returns, and projects that make less and less sense as the population base shrinks beneath them.

Some of the parallels are structural. Some are psychological. But what matters most is the direction of travel—and the pace. Because if history offers any guidance, the earlier the intervention, the better the odds of avoiding a multi-decade trap. Delay doesn’t just deepen the hole. It normalizes it. It hardens it into policy. And eventually, it becomes the baseline against which everything else is measured.

This isn’t just about demographics, or debt, or property markets. It’s about the feedback loops that emerge when all three begin to reinforce each other—when falling confidence leads to falling consumption, which leads to weaker growth, which leads to tighter credit, which leads to more defaults, which leads to even lower confidence.

Japan lived this cycle. It still is.

And China isn’t just approaching it. It’s already in it.

And the world has only just begun to grasp what that means.