The Nikkei Average of 225 selected Tokyo Stock Exchange issues hit a record high of 38,900 yen at the end of 1989, the first year of the current Heisei era. Shortly afterwards, the speculation-driven, asset-inflating "bubble" economy burst, plunging Japan's economy into a prolonged slump.
One aspect of the economic slump was the financial crisis symbolized by the failure of Yamaichi Securities Co. in 1997. Japan managed to overcome the crisis by providing huge quantities of government cash to financial institutions. Another aspect was the slowdown among major Japan Inc. companies such as electronics makers that had been the driving force behind the country's postwar growth. Japanese firms continue to struggle even at the sunset of the Heisei era.
Meanwhile, the economy has also been shaken by globalization following the end of the Cold War.
Furthermore, the internet, born in the United States, has drastically changed economics and society. Japanese companies lagged far behind in responding to digitization.
"The internet was a huge meteor. Even though we attempted to promptly respond to digitization, we were unable to get away from traditional manufacturing," recalls Nobuyuki Idei, 81, president and chairman of Sony Corp. for 10 years from 1995.
Idei was shocked to hear then U.S. Vice President Al Gore's 1993 speech about the country's plan to build up the internet. Specifically, the United States was aiming to connect computers at companies and homes with a high-speed communication network, and develop the information technology sector into a major industry.
The digital revolution worked in favor of emerging economies by allowing businesses in these countries to manufacture goods with a certain quality without advanced technologies.
Idei's shock was warranted. Japanese electric appliance and electronics manufacturers ended up on the losing end of market battles with foreign rivals. Apple Inc. of the United States dominated Japan's smartphone market with the iPhone, and Chinese and South Korean competitors also grabbed market share from Japanese firms.
The world is now undergoing a fourth industrial revolution, in which artificial intelligence is drastically changing society. Japanese companies are again lagging behind U.S. IT giants that are using AI to dominate global internet society.
Yoshimitsu Kobayashi, 72, who served as head of the Japan Association of Corporate Executives, describes Heisei as "an era of defeat" for Japan.
The government's attempted bailout of the tech industry also caused confusion. It took the initiative by launching Japan Display Inc., capitalized with a public-private funding mix and integrating Japanese electronics firms' smartphone-related divisions. However, the government failed to turn the company into a success and ended up selling it to a Chinese-Taiwanese corporate group.
Efforts by Yuki Seimitsu, a small metal processing company based in Chigasaki, Kanagawa Prefecture, south of Tokyo is a good example of responding to the changing times. The company with some 40 employees was once on the verge of going under during the Heisei era, but now excels in cutting-edge technologies.
Yuki Seimitsu had been a subcontractor that produced parts for public phones, but orders decreased sharply because of the bursting of the bubble economy and the spread of cellphones.
Masato Otsubo, 43, who took over the company from his father, sought opportunities in the aerospace sector. Even though he was unfamiliar with this field, Otsubo attempted to take advantage of his firm's high product quality to find new clients.
The company made full use of its manufacturing technology, which allowed it to turn out nearly perfectly circular stainless steel parts. Even when it is rotating, the part appears completely motionless for over three minutes. When it was unveiled at an international trade fair in Paris, people who viewed it were surprised. Representatives of firms from over 20 countries sought to exchange business cards with Otsubo, and the company quickly received an order from a satellite manufacturer in Europe.
"Any small company can be successful in the world if it has technology and ideas. There must be many Japanese companies that have potential," Otsubo said.
Japan has highly refined skills it has developed through the production of high-quality goods, and Japanese products still enjoy an excellent reputation in the world. Japan should capitalize on such advantages if it wants to harness the fourth industrial revolution for domestic economic growth.
The development of self-driving cars, thought to be a big part of the automotive sector's future, depends on the development of systems that can precisely control cars based on AI analysis of relevant data. The Japanese car industry, which has historically set the pace for the world thanks to its technology, has a chance to lead the market again.
Some small, emerging companies are developing robots using AI. Such robots are expected to play a key role in supporting Japan's aging and declining population.
Major companies that have banked mountains of cash should invest proactively in next-generation technologies and human resource development.
Japan may be forced to fumble its way at the beginning of the next Reiwa era beginning on May 1. What is important is to patiently search for buds of economic growth.