Will Japan Recover Enough to be an AI and Digital Economy Leader?

There is no country more enigmatic than Japan in the eyes of traditional Western analysis. Its culture and language can seem impenetrable, its budget deficit terrifying, its economy stuck in reverse. Japan's Lost Decade of the 1990s (when a nationwide asset bubble burst) turned into a three-decade malaise that even today wants to linger on stubbornly.

Xenophobia in the US directed at Japan in the 70s has gradually faded and been replaced by a much more widespread fear of China's economic growth and the real power it provides Premier Xi Jinping. Japan, on the other hand, has seen its economy decline by more than 30 percent, with its per capita income dropping to that of Spain.

Its cumulative budget deficit runs at more than 200 percent of its GDP; compare that to the US budget deficit of about 100 percent of its GDP. Today, 70 percent of Japanese cars sold in the US are assembled in the US. The country's credit rating is several levels below the highest grade, on a par with Slovenia.

Japan's population is aging and destined for doom unless birth rates pick up or its notoriously impossible immigration policies change. The company remains a pressure-cooker environment for its beleaguered office workers, one-third of which are now contracted employees as a result of less favorable labor laws than in the past.

Yet Japan continues to function and appear prosperous to outside observers. It ranks within the Top 25 countries in the IDCA Digital Readiness Index, due to a strong digital infrastructure that was in place before its economic decline, a strong parity in individual wealth, and a safe, organized society and a government that still provides strong benefits to its people. Its manufacturing sector remains strong.

The country has also remained a strong economic power through its travails, and still has the world's fourth-largest economy (trailing the US, China, and Germany). But its population dropped by 3.6 percent since it peaked at 128.1 million in 2010. It could fall below 100 million within another two or three generations. This trend does not enable a growing economy.

So the question for companies and investors looking for new markets and partners is whether Japan's resilience can somehow continue indefinitely, or whether the Lost Decades will turn into something worse than that.