HONG KONG—Starting in the 1990s Japan became synonymous with economic stagnation, as a boom gave way to lethargic growth, declining population and deflation.

Many economists say China today looks similar. The reality: In many ways its problems are more intractable than Japan’s. China’s public debt levels are higher by some measures than Japan’s were and its demographics are worse. The geopolitical tensions that China is dealing with go beyond the trade frictions Japan once faced with the U.S.

Another headwind: China’s government, which has been cracking down on the private sector in recent years, seems ideologically less inclined than Tokyo was then to support growth.

None of this means China is sure to repeat the years of economic stagnation that Japan is only now showing signs of exiting. It has some advantages that Japan didn’t. Its economic growth in coming years is likely to be well above Japan’s in the 1990s.

Even so, economists say the parallels are a warning for Communist Party leaders in Beijing: If they don’t act more forcefully, the country could get stuck in a protracted period of economic sluggishness similar to Japan’s. Despite piecemeal steps in recent weeks, including modest interest-rate cuts, Beijing has held back on major stimulus to revive growth.

“China’s policy responses so far could put it on track for ‘Japanification,’” said Johanna Chua, chief Asia economist at Citigroup. She believes China’s overall growth prospects could be slowing more sharply than Japan’s.

China today and Japan 30 years ago share many similarities, including high debt levels, an aging population and signs of deflation.

During a long postwar economic expansion, Japan became an export powerhouse that American politicians and corporate executives worried would be unstoppable. Then in the early 1990s, real estate and stock market bubbles burst and the economy hit the skids.

Policy makers cut interest rates to virtually zero, but growth failed to rebound as consumers and companies focused on repaying debt to repair their balance sheets instead of borrowing to finance new spending and investment.

Richard Koo, an economist at the research arm of Japanese investment bank Nomura Securities, famously coined the term “balance sheet recession” to describe the phenomenon.

China, too, has seen a property bubble pop after years of extraordinary economic growth. Chinese consumers are now paying off mortgages early, despite government efforts to get them to borrow and spend more.

Private firms are also reluctant to invest despite lower interest rates, stirring anxiety among economists that monetary easing might be losing its potency in China.

By some measures, China’s asset bubbles aren’t as big. Morgan Stanley estimates that China’s ratio of property value to gross domestic product peaked at 260% in 2020, up from 170% of GDP in 2014; home prices have only fallen slightly since the peak, according to official data. China’s equity markets hit a recent peak of 80% of GDP in 2021 and now sit at 67% of GDP.

In Japan, land values as a percentage of GDP reached 560% of GDP in 1990 before falling back to 394% by 1994, Morgan Stanley estimates. The Tokyo Stock Exchange’s market capitalisation rose to 142% of GDP in 1989 from 34% in 1982.

Also in China’s favour, its urbanisation rate is lower, standing at 65% in 2022, versus Japan’s, which was at 77% in 1988. That could give China more potential to raise productivity and growth as people move to cities and take on nonagricultural jobs.

China’s tighter control over its capital markets means the risk of a sharp appreciation of its currency, which would harm exports, is low. Japan had to deal with a sharp increase in its currency several times in recent decades, which at times added to its economic struggles.

“We believe worries on China being trapped in a balance sheet recession are overdone,” economists from Bank of America recently wrote.

Yet in other ways, China’s problems will be harder to tackle than Japan’s.

Its population is aging faster; it began to decline in 2022. In Japan, that didn’t happen until 2008, nearly two decades after its bubble burst.

Worse, China appears to be entering a period of weaker long-term growth rates before reaching rich-world status, i.e. it is getting old before it gets rich: China’s per capita income was $12,850 in 2022, much lower than Japan in 1991 at $29,080, World Bank data shows.

Then there is the problem of debt. Once off-balance-sheet borrowing by local governments is factored in, total public debt in China reached 95% of GDP in 2022, compared with 62% of GDP in Japan in 1991, according to J.P. Morgan. That limits authorities’ ability to pursue fiscal stimulus.

External pressures also appear to be tougher for China. Japan faced a lot of heat from its trading partners, but as a military ally of the U.S., it never risked a “new Cold War”—as some analysts now describe the U.S.-China relationship. Efforts by the U.S. and its allies to block China’s access to advanced technologies and reduce reliance on Chinese supply chains have sparked a plunge in foreign direct investment into China this year, which could significantly slow growth in the long run.

Many analysts worry Beijing is underestimating the risk of long-term stagnation—and doing too little to avoid it. Moderate cuts to key interest rates, lowering down payment ratios for apartments and recent vocal support for the private sector have done little to revive sentiment so far. Economists including Xiaoqin Pi from Bank of America argue that more coordinated easing in fiscal, monetary and property policies will be needed to put China’s growth back on track.

But President Xi Jinping is ideologically opposed to increasing government support for households and consumers, which he derides as “welfarism.”

To set the mood for poring over budgets and savings goals, Tierra Bates and her husband, Gregory, get dressed to the nines and head to dinner at a fancy steakhouse.

“We’re discussing things, but we’re celebrating at the same time,” said Bates, a school therapist and real-estate agent in Shelby, N.C. “Treating ourselves while still talking about the goals we have in mind.”

This mix of romance and finance has been dubbed a money date by financial advisers and others in the business of building wealth. The idea is to carve out time for the sort of conversations couples often dread by making it an event to look forward to.

Advisers and relationship counsellors say couples who go on regular money dates can better manage their spending, saving and investing. Since disagreements over money can strain marriages, having regular open discussions about financial decisions in a fun and intimate way can help address any troubles before they become a source of resentment.

“I have even suggested to clients, ‘Have the money date in your sexy clothes,’” said Christine Luken, a financial coach based in Cincinnati. “Just go ahead and have it naked—as long as you get the money stuff done.”

Bates and her husband plan money dates throughout the year. In January they set goals for the year, then they set up shorter quarterly follow-ups, as well as brief monthly check-ins for short-term concerns and week-to-week budgeting.

At their August check-in, Bates and her husband visited a local food hall and hired a babysitter to keep the focus on the big conversation: the Bates’s back-to-school budget.

Talking about something as stressful as the school year can bring up a lot of emotions, Bates said, but the money date gives them a specific time to work through everything together. Plus, doing it with good food and adults-only time makes it more enjoyable.

The art and science of the money date

Turning financial planning into a date might sound like a mismatch, but science backs up the premise. It is a form of temptation bundling, pairing a less exciting task with a more exciting reward, that research suggests can actually help people change their habits, said Scott Rick, associate professor of marketing at the University of Michigan.

“Pair the want with the should in order to entice you to do the should,” he said. “Get each other money date presents. Open the nice bottle of wine. Say, ‘This is the night we order in from the best restaurant in town.’”

You might have to spend money to make better money decisions, as counterintuitive as that might seem. As Adam Kol, a financial therapist based in Fort Lauderdale, Fla., likes to remind his clients: “You don’t get bonus points for having a money date if you’re sitting in a dark room and you’re in a miserable mood.”

Box-office receipts

When Megan and Bronson Allen got married in 2019, the Chicago-based couple pooled their finances. They also set up a regular recurring calendar invite that prompted them to sit down together to go over savings, investments and personal-account expenditures.

Megan will pop a big bowl of popcorn and project their laptop onto the TV screen so they can review the money-date agenda items almost “more like a game or a movie that’s playing,” Bronson said.

They have taken their laptops to a coffee shop and cozied up while reviewing coming travel and other big purchases. They also tried a double money date with Megan’s brother and his wife.

“It’s about finding ways to make them kind of lighthearted, like a date and not like a chore,” said Bronson, a 33-year-old software designer.

Their money dates can take several forms, Megan, a 28-year-old product designer, said. Sometimes they look at the calendar and plan travel spending for the month. Or they look back at the previous month’s budget and compare it to the bank statement.

Then there are pitch days, when one of them makes the case for an especially big purchase or financial goal. On a recent money date, Bronson made the case to take some money from their shared account to invest in a new road bike for his triathlon training, laying out his plans as he and Megan mixed drinks.

“I’ve been running the numbers, and this is what I’m thinking, and this is the account it would come from,’” he told her.

They landed on a compromise: Bronson would sell his old bike to invest in the newer one.

Making a first money date

For couples looking to set up their first-ever money date, Kol recommends reviewing the most recent credit-card statement as a duo. When both partners are looking at the transaction history, they are better able to get on the same page about what needs to be done about recurring subscriptions or spendthrift tendencies.

“It doesn’t have to be ‘I can’t believe you spent this, we need to cut this,’ but instead ‘Let’s make sure nothing weird is going on here. Let’s make sure our kid isn’t charging $700 to Candy Crush,’” he said.

From there, you can build onto your money dates and introduce different themes or topics to organise them. For example, maybe one month you and your partner review your respective student-loan payment plans, and the next you could price out travel options for a coming vacation.

“Having that monthly touchpoint allows you to feel like ‘OK, if I have a concern, it’s not going to go on indefinitely. I’ll have a chance to talk to them, I don’t have to confront them,’” Kol said.

Many corporate board directors aren’t confident about their ability—or their board’s—to oversee sustainability and social impact issues, even as companies pursue such goals and regulators want more disclosures on environmental, social and governance impact.

Eighty-three percent of directors surveyed said ESG topics were critical knowledge for directors, but less than half considered themselves to have “advanced” or “expert” level knowledge, according to a survey of board directors conducted in July by WSJ Pro in collaboration with the National Association of Corporate Directors.Directors of larger firms and listed companies expressed higher confidence, as did those in the energy industry.Respondents relied on external advisers to build their knowledge.

Other findings were that most believed sustainability efforts had brought real benefits and said ESG engagement with investors had been mostly positive. Directors also said the anti-ESG movement had an impact. They also reported that while about half of big companies had ESG targets—many linked to executive compensation—smaller, private companies lagged behind.

The survey’s 506 respondents covered a range of company sizes and included public, private and not-for-profit organisations from many sectors, with a concentration in financial services, industry, tech and energy. They said their ESG maturity level was across the spectrum: 4% self-identified as industry leaders, 27% as well developed, 36% as somewhat developed, 28% as early stage and 5% hadn’t started with ESG. Overall respondents rated their own ESG expertise slightly higher than that of their fellow board members.

Training up on sustainability

“As a board member, if you’re hoping that ESG is just a fad that will pass with time, we have enough data now from the last 2½ decades to know ESG is here to stay and boards need to be ready,” said Kristin Campbell, general counsel and chief ESG officer of Hilton Worldwide Holdings and board director at ODP and Regency Centers.

Campbell said boards must evaluate ESG as part of the company’s long-term strategy, otherwise activists, regulators, customers or someone else might do it for them, perhaps in a way that will be painful operationally or harmful to their reputation. “It’s that classic story of either you’re at the table or you’re on the menu,” said Campbell.

Alan Smith—responsible for the strategic management of the Church of England’s £10.1 billion (equivalent to $12.6 billion) perpetual endowment fund—said many boards had brushed up on ESG knowledge with in-house training, e-learning packages or advisers to run workshops. A former senior adviser at HSBC on climate and ESG risk and current First Church Estates Commissioner, Smith said he also found it helpful to see projects, such as offshore-wind farms, and speak to their operators in person.

“I think an integrated approach to board director education—of which one important part is getting on the ground and in the mud or on the boat—is very important,” he said.

More than two thirds of directors said their organisations brought in external advisers to complement or build board’s ESG skills, with most advisers providing subject matter expertise (44%), education and training (41%), or research and analysis (37%).

“What we know about ESG will change today and will probably change tomorrow,” Hilton’s Campbell said. “It’s the job of an external adviser to know what’s going to happen next week and next year, which is useful in keeping the board ahead of the game.”

Stakeholder engagement

Overall, investors were the most influential stakeholders on board decisions related to ESG strategy, followed by company executives, regulators and customers. For public companies investors were most influential, followed by regulators, while directors of private businesses ranked their customers as top with investors in second place.

Respondents ranked their ESG-related interactions with investors as largely positive or neutral. Seventy-one percent of directors of organisations with investors said their largest ones had engaged with the board over the past 12 months on ESG topics.

However, public and private businesses approached this engagement quite differently. Private company investors most often engaged with the full board or directly with management, whereas public company investors worked most often with individual directors or sometimes with the full board, but rarely with management.

Anti-ESG impact

The survey also examined the impact of the rising anti-ESG movement in the U.S. Many boards started their ESG journey in 2020, but, particularly in the last six to 12 months, the extent of the political backlash in the U.S. has made it more complicated, said Smith. “You had a wind that was giving companies and boards energy, and now you have a countervailing wind of political backlash,” Smith said.

As the pressure has mounted, there have been numerous reports of green-hushing—when a company scales back what it says about its climate and social initiatives in corporate communications. The survey found evidence to support this: 7% of directors said their company no longer publicly communicates about its ESG activities, and 14% said their board and management no longer use the term ESG when referring to relevant activities.

Respondents report substantive changes too. One in five said their companies are reassessing their approach to ESG, 12% said they have deprioritised ESG as a critical business issue, and 15% of directors, primarily in smaller private businesses, believe ESG is negatively affecting their business decisions and strategy.

Despite those changes, half of respondents believe ESG will continue to be an important driver of their business decisions and strategy. Nearly as many say their board and management remain committed to ESG as an opportunity for growth and a driver of long-term risk reduction.

Driving ESG performance

While most respondents said ESG is critical knowledge for directors, only 37% of their organisations have set a climate-impact reduction target, although that was 54% for large organisations. Nine out of 10 of those companies with a target said their boards monitored their progress toward those goals and four out of five believed they were achievable.

To encourage management to hit targets, over one quarter of respondents said their company had linked executive pay to ESG goals, and a further 29% were considering doing so in the next 12 months.

“If we’re going to be more serious about ESG and building it into a company’s long-term strategy then I think it needs to be tied to executive compensation like any other [key performance indicator],” Campbell said.

 

Nearly a fifth of directors surveyed said reducing the impact of climate change is a priority regardless of financial performance. Almost half said it is a priority but not at the cost of financial performance, while the remaining third said it isn’t a priority at all.

Many directors report real benefits from their ESG efforts. In particular it has enhanced their company’s reputation and brand value (57%), risk management and resilience (54%), and ability to attract and retain talent (44% and 40%, respectively).

Climate change was talked about more frequently in 43% of the boardrooms, while in 31% it actually decreased. The topic was discussed at most or every board meeting for 29% of respondents, 36% said it came up at some meetings, and 23% said it was rarely talked about. Only 11%—primarily small, private companies—hadn’t discussed it at all.

Smith said it was particularly important for smaller companies to keep climate change front of mind: “Those that say they aren’t doing anything yet are paradoxically the ones that may be hit first because they’re downstream of big companies setting more immediate net zero carbon neutral targets.”

As well as calling it a business differentiator for small businesses, Smith said a focus on climate impact reduction was “a survival mechanism.”

FRANKFURT—The European Central Bank raised interest rates by a quarter percentage point to a record high but signalled that eurozone borrowing costs may have peaked, sending the euro tumbling.

In a split decision, ECB officials raised the bank’s deposit rate to 4%, the 10th increase in a row and a vertiginous rise from below zero last year.

At a news conference, ECB President Christine Lagarde signalled that Thursday’s rate increase might be the last, although she didn’t rule out further hikes if economic data disappoint.

ECB officials judge that rates “have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution” to reducing inflation to their 2% target, Lagarde said, repeating language used in the bank’s policy statement.

The comment prompted investors to downgrade their expectations for future ECB rates, sending the euro down by almost a cent against the dollar to below $1.07, its lowest level since March. Bond yields slid, with yields on the benchmark 10-year government bonds of Germany, France and Italy down between 0.05 and 0.10 percentage point. European stocks rallied, with the benchmark Stoxx Europe 600 index rising more than 1%.

The eurozone still has lower interest rates than the U.S., as well as higher inflation and a struggling economy that contrasts with relatively healthy economic growth in the U.S.—all factors that are weighing on the euro.

“In all likelihood the ECB is done,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management in Geneva.

Major central banks including the Federal Reserve are signalling a possible halt to a historic series of interest-rate increases over the past 18 months aimed at tackling a surge in inflation unseen since the 1970s.

Ending rate increases would favour borrowers amid uncertainty in the global economy, declining international trade and faltering industrial output. However, signalling a peak in interest rates now risks letting excessive inflation on both sides of the Atlantic become entrenched. Some central banks, including those of Australia and Canada, signalled a pause in recent months, only to start raising rates again.

Recent market movements suggest investors are now betting that rates will peak and even start falling as early as next spring as inflation and economic growth both come down.

They expect the ECB to hold interest rates at about 4% through next summer before starting to cut them, according to data from Refinitiv. They think the Fed will hold rates steady in a range between 5.25% and 5.5% at its meeting next week, and to start cutting rates early next year. The Bank of England is expected to increase interest rates at least once more this year before cutting them later next year.

Investors had been unusually divided before Thursday’s decision over whether the ECB would pause already or unveil one last rate increase. That disagreement reflects uncertainty over how much a slowdown in eurozone growth, together with the ECB’s past rate increases, will cool the region’s inflation rate, which stood at 5.3% in August, unchanged from a month earlier.

Lagarde said some of the central bank’s governors would have preferred to hold rates steady at this month’s meeting. However, a “solid majority” of them agreed on the decision to take rates higher, she said.

New economic forecasts published by the ECB Thursday suggested that eurozone growth will slow significantly more than previously expected this year and next, while inflation will remain markedly above the ECB’s target of 2% through next year. The bank raised its forecast for inflation next year from 3% to 3.2%, mainly to reflect “a higher path for energy prices.”

Asked about the prospect of rate cuts, Lagarde replied that “is not even a word we have pronounced.”

“The longer they can keep interest rates at elevated levels, the more insurance they buy against a downturn down the road,” said Robert Dishner, a senior portfolio manager at Neuberger Berman. “If they end up cutting too soon, they risk reigniting inflation.”

Central banks in Europe face a particularly daunting challenge because while recent interest rate rises have weighed heavily on lending and probably lowered economic growth, they have yet to show a marked effect on underlying inflation. This contrasts with the U.S., where the Fed has taken interest rates higher than the ECB and underlying inflation has fallen significantly while the nation’s growth remains robust. Underlying inflation in August was 5.3% in the eurozone and 4.3% in the U.S.

Recent data and business surveys signal a darkening economic outlook for Europe amid weak growth in China and a decline in global manufacturing. The eurozone economy has largely stagnated since late last year, and industrial production declined in July, dragged down by weakness in Germany, the region’s largest economy.

Lagarde warned that Europe is currently going through a phase of very sluggish growth and suggested that the ECB’s rate hikes are filtering through to the economy. “We are beginning to see weakness in the volume of hires particularly in the services sector that is related to manufacturing,” she said.

Meanwhile, a recent increase in oil prices is pushing inflation in the wrong direction. The euro has slumped against the dollar in recent weeks, to around $1.07 from $1.12 in July, as the eurozone’s economic prospects have soured. That increases the cost of imported goods, making the ECB’s job harder.

Matthew Ryan, head of market strategy at financial-services firm Ebury, said the ECB would likely start cutting rates later, and possibly at a more gradual pace, than the Fed, which should support the euro.

Some of the economic weakening is as intended. The ECB expects its rate increases to slow the region’s economy by weighing on asset prices and demand for loans. However, it isn’t clear if inflation is starting to fall because of the ECB’s actions or because of other factors, such as the fact natural-gas prices are dramatically lower compared with last year, when Russia throttled Europe’s gas supplies. This makes it hard to predict if the region’s economic slowdown will push inflation all the way down to 2%.

Market confidence in the ECB’s ability to achieve its objectives is gradually eroding, with the closely watched five-year, five-year inflation swap—a gauge of expected inflation over a 10-year horizon—standing at 2.6%, according to Franck Dixmier, global chief investment officer for fixed income at Allianz Global Investors.

High current and expected future inflation could mean that investors are underestimating the potential for further ECB rate increases, Dixmier said.