Big in Japan: the rise, fall, and return of Japanese industry

This paper investigates the structural transformation of Japan’s manufacturing sector from 1995 to 2020, focusing on the dynamics of deindustrialization, offshoring, and the emergence of reshoring. Using a novel subsystem approach within a multi-regional input-output (MRIO) framework, we provide a comprehensive analysis of employment trends across domestic and foreign production networks. Our findings reveal a nonlinear trajectory characterized by four distinct phases: domestic deindustrialization (1995–2001), reindustrialization via foreign employment growth (2001–2008), a synchronized downturn following the global financial crisis (2008–2012), and a more resilient and potentially reshoring-driven phase (2012–2020). The subsystem perspective exposes the hidden strength and interconnectivity of manufacturing, particularly in medium-high-tech industries, and challenges conventional narratives of industrial decline. In addition, the analysis highlights how structural change increasingly reflects the interaction between technological upgrading, regionalized value chains, and concerns over economic security. The geographical evidence points to a gradual transition from extensive offshoring toward more selective and strategically managed production networks, particularly within Asia. This study contributes to the debate on industrial policy and economic security by showing how Japan’s manufacturing model is evolving toward a more compact, resilient, and technologically advanced configuration, in line with the goals of Society 5.0.