Although certain mixed indications appear to show that the U.S. economy might be on the mend (while ironically the stock market has been declining over the last couple of weeks), commentators in some corners of the internet are starting the J-word (Japan). Although it may seem hard for anyone under the age of 30 to imagine, but there was a time in the 1980’s when many Americans thought that the U.S. was going to be displaced by Japan, much the way people look at China today. However, over the last 20 years, Japan has become Exhibit A for an economy suffering generational economic stagnation, and certain commentators are worried that the U.S. is looking at a generational period of economic stagnation.

In many ways, the story of Japan seems eerily similar to that of the U.S. In both cases, we see massively inflated property bubbles that burst (and in Japan’s case a massive stock market bubble too), followed by years of low interest rates, bad banks, and a sluggish economy. In Japan, as in the U.S., there is an aging population which also serves as a drag on economic growth.

However, there are many differences as well, which support those who doubt that the U.S. is in fact the next Japan. Firstly, the Japanese property bubble was much larger than the American one, in that valuations reached even more absurd heights than they did here. It was reported at the time that all of the real estate in Tokyo was worth more than the entire United States, and that the Imperial Palace grounds were worth more than the entire state of California. Say what you will about the American property bubble, but valuations never became this ridiculous.

Secondly, Japan also had a massive stock market bubble that dwarfed anything that the U.S. has seen. The Nikkei Index peaked at 38,957 on December 25, 1989, and is currently trading around 14,800, or a loss of 54%. This is unlike anything that the U.S. has ever seen. The worst comparable period would have to be the 1929 crash, in which it took another 24 years for the U.S. stock market to get back to the 1929 level. In the case of Japan, we are almost 25 years on and the Nikkei would have to increase by 163% to return to the 1989 level. It is possible that this may never happen.

Another factor buttressing the “U.S. is not Japan” thesis is population growth. One reason for Japan’s sluggish/stagnating economy is simply that the population has stagnated. Since 1990, Japan has grown by only roughly 4 million people (3%), whereas the U.S. has grown by 63 million (25%) over the same period. All things equal, a population that is growing (unless perhaps if that growth consists largely of retirees immigrating into the country) will result in an economy that is growing; and one that will certainly grow faster than a country with a stagnating population. In addition, the U.S., even with the some of the recent anti-immigrant rhetoric, is still one of the most welcoming countries on earth which can serve to increase the population, while Japan largely is not. Consequently, there is not likely to be a wave of immigrants into the country bringing skills and ‘human-capital’ that will serve to grow and youthenize (to make younger) the population, which would allow for less stagnation or more growth.

Finally, a growing population such as the U.S. will create a growing source of domestic demand, whereas a stagnating population will not. Consequently, a country like Japan is much more reliant on exports to grow its economy than one like the U.S. This, and the fact that so much trade (i.e. oil prices) are denominated in U.S. dollars, means that the Japanese economy is much susceptible to foreign exchange rate fluctuations to dictate the competitiveness of its exports. The U.S., on the other hand with its currency still operating as the world’s reserve currency, has more options at its disposal to enhance its foreign competitiveness.

Overall, although there seem to be many superficial similarities between the U.S. and Japan, their demographics, economies, and global economic positions are very different. While both the U.S. and Japan face some similar problems, the U.S. is still projected to have roughly 400 million people by 2050 (an increase of 60% over 1990), while Japan is projected to have 87 million by 2060 (a decrease of 30% since 1990). That, the fact that the U.S. can produce its own fossil fuel energy (Japan, currently largely cannot), the fact that the U.S. will have a younger population than Japan, as well as the U.S. position in the global economy makes it unlikely that the U.S. will be Japan anytime soon.