As someone who has been in the financial publishing industry for more than 40 years, I understand what a major role economics plays in the world of wealth building and investing. I don’t need to be an expert in the history of economies to recognize how huge an impact inflation, deflation, debt, and fiscal and monetary policies have on my ability to grow a business or see my stock and bond portfolio increase in value.

I also know, from the same experience, how difficult it is for even the best of the experts, analysts who spend their lives studying economic and financial data, to predict economic and financial fluctuations over the long term. That’s what the studies show. It’s also what I know from looking at the long-term track records of the more than 100 analysts that I’ve known on a first-name basis.

I understand that even for the smartest and most diligent financial analysts, there will be years when virtually everything they predict comes true and every financial move they recommend is successful. But eventually, in a year or five years or 10 years, something happens with the economy that they didn’t foresee, and that can lead to losses that are almost catastrophic.

So, the rule I follow is to invest my time and money in economies that are fundamentally healthy, but to hedge my bets by diversifying my holdings so that, if things go south for whatever reason, my total losses in any one financial instrument is never more than one or two percent of my investible net worth.

It’s a very conservative investment philosophy. As Will Rogers said, “I value the return of my capital more than the return on my capital.”

So, how does this relate to my views about investing in Japan?

I have a positive view of the Japanese people, their work ethic, their human and financial values, and their culture generally. And because of that – and because I enjoy spending time in Japan at least once a year – I’ve taken a long position on the Japanese economy.

As for the short- and mid-term prospects of the Japanese economy, I am agnostic. I am an investor of my time and money, but I protect that investment with financial hedges, alternate investments, stop-losses and, most of all, position sizing.

In other words, my approach to investing in Japan includes lots of hedging.

I know enough about Japan’s economy – and its post WWII history – to believe that from a classic, free-market Capitalist perspective, it is problematic. But on a more practical, slightly Austrian-leaning view – where incentives, culture, and long-term capital allocation matter – the Japanese economy feels good and promising.

For decades now, the Japanese government has been struggling with deflation, stagnation, and weak demand with ultra-low interest rates. They have been doing this with aggressive monetary policy and steady fiscal support. And I’d argue that they have succeeded. Asset prices have stabilized. Unemployment rates are low. Consumer savings are high. And the social environment in Japan is strong and cohesive – which is what enabled the Japanese to endure all those years of stagflation.

One of the criticisms I’ve heard about Japan’s economy is that the Japanese people are less entrepreneurial than, say, Americans. They take fewer risks. And because of the low federal interest rates they’ve had for so many years, there is less incentive for efficiency.

When money is essentially free for long periods, it changes behavior. Weak companies survive longer than they should. Banks become cautious instead of opportunistic. Entrepreneurs and investors don’t have the market feedback they would have if interest rates were higher.

But those are essentially the conditions that Japan has been dealing with for 30 years. And from what I’ve seen doing business there for that length of time, the Japanese have enjoyed an extraordinarily high standard of living while avoiding the kind of boom-bust cycles we’ve had in the US and Europe.

Another criticism of the Japanese economy is demographic. Japan is aging faster than almost any developed country, and its population is shrinking. From a purely Keynesian or growth-maximization perspective, that’s a disaster. Fewer workers, less consumption, slower GDP growth.

But when I asked some of the market analysts I know about this, several said the same thing. They said that what matters more than GDP growth for investors is “per capita wealth, productivity, and capital efficiency.”

If that is correct, it’s good news for Japan. Because on those fronts, in many sectors, the numbers are improving. And that’s not an accident. It’s a healthy combination of fiscal policy, pressure from global investors, and the recognition inside Japan that sitting on cash and underperforming isn’t a sustainable long-term strategy.

Another thought I have about the Japanese economy – and this is something that, I admit, is just a hunch, not an informed opinion – is about Japan’s position in the global supply chain.

Japan is not just an exporter of finished goods, it’s a critical supplier of high-end components, precision machinery, and specialized materials. In a world that’s becoming more fragmented – geopolitically and economically – that kind of positioning matters. It gives Japan a kind of quiet leverage that doesn’t always show up in GDP figures.

So, I don’t look at Japan as a place to make big, aggressive bets. That’s not my style, anyway. I look at it as a place to allocate capital carefully, with an emphasis on quality, balance sheets, and long-term positioning.

Just the Facts 

* Japan is the world’s fourth-largest economy, with GDP of roughly $4 trillion–$5 trillion, behind only the United States, China, and Germany. Despite decades of slow growth, it remains one of the world’s richest countries on a per-capita basis.

* Japan has the highest government debt burden in the developed world. Gross public debt is more than 250% of GDP, yet interest rates remain among the lowest in the world because most of that debt is owned domestically.

* Japanese households collectively hold over ¥2,000 trillion (roughly $13 trillion–$14 trillion) in financial assets. Historically, much of that wealth sat in bank deposits earning almost nothing, but more money has begun flowing into stocks through tax-advantaged investment accounts.

* The Japanese stock market, represented by the Nikkei 225, finally surpassed its 1989 bubble-era peak in 2024. It took more than 34 years to recover from one of history’s greatest asset bubbles.

* Japanese companies are sitting on enormous cash reserves. Many large corporations have stronger balance sheets than their American counterparts and collectively hold hundreds of billions of dollars in cash and short-term investments.

* Corporate governance reforms have quietly transformed Japan’s stock market. Companies are increasingly pressured to improve returns on capital, buy back shares, raise dividends, and focus on shareholder value.

* Warren Buffett became one of the most prominent foreign investors in Japan after building large stakes in Japan’s five major trading houses: Mitsubishi Corporation, Mitsui & Co., Itochu Corporation, Sumitomo Corporation, and Marubeni Corporation.

* Japan faces one of the most severe demographic challenges in the world. Its population peaked around 2008 and is shrinking by hundreds of thousands of people annually, creating labor shortages and long-term economic headwinds.

* Foreign investors often overlook that Japan’s stock market is much broader than automobiles and electronics. Despite its aging population, Japan remains a technological powerhouse.