Japanese Prime Minister Shinzo Abe’s policies to stem deflation and spur growth won’t be a “magic bullet” that shakes the nation’s economy out of stagnation, said Simon Johnson of the Massachusetts Institute of Technology.

While Abe’s efforts are “significant,” an aging population, heavy debt loads and a lack of immigration will continue to hobble the Japanese economy, Johnson, a former chief economist at the International Monetary Fund, said in an interview on “Bloomberg Surveillance” with Tom Keene and Sara Eisen.

“I don’t think you should expect Japan to become a lot more dynamic, or for capital flows to change,” said Johnson, who is professor of global economics and management at the MIT Sloan School of Management. “We’ve seen many efforts in the last decade or two to try and restart the Japanese economy. The longer-term dynamics around the demographics is very difficult for them. And they have a lot of debt, which is going to be a difficult overhang.”

Japan had its biggest stock rally in 25 years as the Topix index jumped 24 percent this year amid Abe’s steps to reverse two decades of stagnation and the Bank of Japan pledged to double its bond-buying stimulus program. The stock gauge reached its highest level since August 2008 on May 22. The yen, whose strength hurt exporters, has fallen 13 percent against the dollar in 2013. 

Abe has also pledged to loosen rules on businesses ranging from non-prescription drugs to construction to recoup 50 trillion yen ($502 billion) in national income that was lost during two decades of economic malaise, the prime minister said.

The fiscal and monetary efforts alone won’t be enough to achieve domestic or global economic transformation, Johnson said in the interview.

“Balance sheets have to be rebuilt, and that is the lesson from Japan,” said Johnson, a Bloomberg View opinion columnist. “When you have a big financial crisis, it does enormous damage.” 

(Bloomberg)