A little self-praise (Not far off, all things considered)

2026/01/01

values

A little self-praise (Not far off, all things considered)

Happy New Year.

Many things unfolded in 2025. In terms of international relations, the first half of the year saw near-daily media coverage of turmoil in the global economy triggered by Trump’s tariffs. Naturally, Japan was not immune to their impact. In the end, while the damage from the tariffs was not as severe as initially feared, Japan was nevertheless forced to accept unfavorable conditions, including having little choice but to commit to massive investments in the US. In the latter half of the year, relations with China deteriorated following Prime Minister Sanae Takaichi’s seemingly careless remarks.

My personal view is that both the Japan–US and Japan–China issues stem from a sharp decline in Japan’s presence on the global stage. China in particular already has a GDP nearly five times that of Japan, and with a clear gap in growth rates as well, the disparity in economic scale will only continue to widen going forward. China’s military power has likely grown stronger in step with its economic expansion. In many fields of cutting-edge technology, including AI, China is already ahead of Japan. It also weathered the tariff war initiated by the US with relative ease, by hinting at suspending imports of US agricultural products and exports of rare earths. Meanwhile, war-weary Russia finds it difficult to maintain its standing in the international community without Chinese backing. Today, China stands as a self-confident global power. Adding to this, the US, which had previously shown a willingness to fully support Japan, has more recently taken a stance that ties its support to financial contributions, placing Japan at an even greater disadvantage. Against this backdrop, I came to worry that Prime Minister Sanae Takaichi was viewing our neighboring country through an outdated lens. All of this has led me to the view that the world ahead will be one in which the US and China reign with overwhelming power, leaving both Japan and Europe on the sidelines. I initially considered writing this column around such forecasts for the future, but I would like to leave that as a topic for a future installment. Instead, this time I want to look back on the predictions I have made here so far. As I reflected on them, I found myself thinking that, by and large, they were not far off the mark—and so I decided to write about that.

(1) Predicting the shift from deflation to inflation

Japan’s negative interest rate policy came to an end in March 2024. More recently, long-term interest rates have risen sharply, banks’ businesses have begun to normalize, and there has been growing talk of the arrival of an inflationary era—one that now feels likely to persist for some time. However, in this column I had already predicted the advent of an inflationary society back in 2022. Below is a summary of the text from that time, created by ChatGPT.

About 25 years ago, after seeing how many kimono-producing regions were relocating production overseas against the backdrop of labor-cost disparities, I predicted that the Buddhist altar industry would follow the same path. Although there was initial resistance to that idea, labor shortages and cost differentials eventually made overseas production a reality, and economic rationality ultimately reshaped the industrial structure. The same phenomenon applies to the Japanese economy as a whole.

From the 1990s onward, globalization, China’s low-cost labor, and advances in information technology prolonged a period of deflation in which neither prices nor wages rose. In recent years, however, globalization has begun to retreat amid rising resource prices, a weaker yen, and growing geopolitical risks, and the mechanisms that once enabled low-cost supply are collapsing. The current rise in prices is not boom-driven but cost-push in nature; however, the structural forces behind it are strong, making it highly likely that we are now at a major turning point—from three decades of deflation toward a society of sustained inflation. (November 2022, “Structural transition from long-term deflation”)

(2) Predicting the move from a labor shortage to a labor surplus

At present, labor shortages are widely discussed. However, because society continually advances technology to address such shortages, I predicted that at some point we would enter an era of labor surpluses. When AI replaces desk-based work, robots take over blue-collar labor, and driving becomes fully automated, how much work will remain for flesh-and-blood human beings? I had already voiced such concerns as early as 2023.

In recent years, news reports illustrating the growing replacement of human labor by AI have begun to appear with increasing frequency. That said, while AI is useful for production, it does not contribute to consumption. Against this backdrop, I also recently pointed out the question of how society will strike a balance under such conditions.

Technology continues, often without our noticing, to replace human labor. This is occurring through developments such as robotic food delivery and QR-code ordering in restaurants, advances in autonomous driving in the taxi industry, and the emergence of generative AI. At present, labor shortages are severe, and attention is focused on low unemployment rates and rising wages. Yet it is precisely this situation that is further accelerating labor-saving measures and automation. Beyond front-line labor such as food service and transportation, generative AI is also beginning to make inroads into white-collar jobs, and the wave of labor replacement is likely to spread widely.

As a result, a shift toward a society with surplus labor, one that ultimately outpaces today’s labor shortages, is unavoidable. Rather than focusing on short-term full employment, the real long-term challenge will be how society deals with people who lose their jobs and how to contain the inequality and social divisions that may result. (July 2023, “Thinking beyond labor shortages”)

Two years ago, I predicted that beyond today’s labor shortages, technological labor replacement would accelerate, eventually ushering in an era of labor surplus. In recent years, signs of that shift have begun to take on a more tangible form.

At major US technology companies leading the development of AI, large-scale workforce reductions are underway despite strong business performance, and even some highly skilled professionals are now starting to be replaced by AI. Because AI can perform tasks more accurately and efficiently than humans, work that once required 10 people can now be handled by half that number, making job losses unavoidable.

At the same time, AI expands production without creating any corresponding demand, raising concerns that the balance between production and consumption may begin to break down. Behind the prevailing optimism surrounding labor shortages, a major transformation is approaching—one that threatens to fundamentally reshape employment, consumption, and social systems. (September 2025, “Labor surplus has already begun”)

(3) Trump cannot beat China (an aside)

In early spring 2025, a confrontation erupted between the US and China over tariff hikes. At one point, US tariffs on China climbed to between 125% and 145%. In the end, however, the US was unable to extract meaningful concessions from China, and the tariffs were subsequently suspended or scaled back, leading to the current situation. From a structural perspective—given the deep economic interdependence between the US and China, as well as the differences in their political systems—this outcome was largely foreseeable. Even now, it appears that the US has managed to extract little in the way of concessions from China.

President Donald Trump sought to frame the US–China confrontation as a casino-style deal, using tariffs as a weapon. China, however, has defied those expectations, refusing to back down and responding with successive rounds of retaliatory tariffs. As tariff competition intensifies, it is businesses and consumers in both countries who ultimately bear the costs, and dissatisfaction inevitably accumulates.

In the US, a democratic nation, such discontent feeds back into politics through elections. In contrast, China, a one-party state, can suppress dissatisfaction and endure a prolonged standoff. As a result, it is highly likely that the US will be the first to lose its nerve.

An aggressive deal risks backfiring by shifting the burden onto the public. As the world is buffeted by this precarious bargaining, a new phase is emerging in which countries other than the US gradually draw closer to one another. (April 2025, “US–China tariff tit-for-tat”)

All told, these forecasts may not have been perfect, but they were close enough to count. With that bit of self-congratulation, I will bring this column to a close. I look forward to your continued support in the year ahead.

Hirotaka Shimizu
Chairman and CEO
Kamakura Shinsho, Ltd.

Image material：PIXTA

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