Japan Watching: Society, Politics, Culture, Economy, Environment, And the World

East Asia’s economic growth is motoring ahead thanks in part to free trade agreements (FTA).  It’s a pity that Japan, the country most in need of a growth stimulus, is being left behind.

Japan’s government has the world record for public debt.  Household incomes have declined over the past 10 years.  Japan’s citizens are now saving less and less as the population ages, and personal savings will turn negative later this decade.  Japan’s level of poverty is the fourth highest among the OECD group of rich countries.  And income from work and savings has become 30 per cent more unequal since the mid-1980s.

And yet, Japan’s corporations are sitting on more and more cash.  Will there be a corporate takeover of this beautiful country? 

The value of Japan’s gross domestic product is today no higher than it was in 1993.  We used to talk of a lost decade and now many talk of two lost decades.

But who is responsible?  Could it all have been avoided?  According to the Bank of England’s Adam Posen, the Great Recession from 1992 to 2002 was the result of policy errors, and it could indeed have been avoided.

Why has the Japanese economy been so weak for so long?  International and Japanese business leaders claim that it is because corporate taxes are as a high as all hell.

If Japan were a company, it would be ripe for a takeover by a corporate raider.  High and rising debt.  Ageing and declining workforce.  No effective strategic direction.  It is not surprising therefore that China is now moving in.

Japan’s new Prime Minister, Naoto Kan, has made an impressive start.  He seems confident and decisive, with a clear view of the challenges before him.  His Policy Speech to the Diet on 11 June has many interesting elements including: cleaning up government; fixing up the economy, public finances and social security; and building up foreign policy and national security policy.

Fixing up the economy, public finances and social security is where Kan is making his first moves.  The signs are good.  But is it still possible to save the economy without having a crisis?

It’s not fair!  Those Americans caused the global financial crisis, but their GDP only contracted by 2 1/2 % last year.  Poor Japan, whose financial sector was in good shape, suffered a crash of more than 5%, as its exports of goods and services plummeted by 24% (in fact, exports fell by some 50% between September 2008 and January 2009). 

What happened?  And which way next?

It’s hard not to be contaminated by “Japo-pessimism”.  Economic recession.  A bumbling government.  Lack of confidence in an ageing future.  Toyota on the ropes.  Korean companies like Samsung leading on world markets.  But the Japanese economy does have a dynamic under belly.

Deflation is back in Japan.  Prices are falling again.  Surely, we should rejoice, everything is getting cheaper.  But not if your salary is falling too, and certainly not if falling prices mean real interest rates are automatically too high.

Japan is almost up to its neck in debt.  And the local market just keeps swallowing it up.  But according to a recent IMF paper, it cannot go on forever.  Japan cannot continue defying gravity.  The chickens will soon come home to roost.