Despite Japan’s prominence in global finance and trade through the 1980s, its global role has appeared to diminish with its recent stagnation and the rise of China. This article reviews the claimed sources of Japan’s stagnation, including productivity and labour slowdowns, monetary policy in the aftermath of the Plaza Accord and the surge in China’s growth. Their independent effects are quantified using a multi‐region global dynamic model. The productivity slowdown emerges strongest however its exogeneity is questioned. The resulting losses are shown to have been severe for the Japanese but mild in other regions, disguised by the rise of China.