What's up with Japanese economy?

Here we go again with the umpteenth economic stimulation package aimed at straightening out Japan’s problems. After years and years of attempts to get the thing moving, it looks like we are now set to return to the era of deflation and under-performance.

The announcement by the creaking Hatoyama coalition cabinet that it has agreed to raise over 7 trillion yen in a second supplementary budget coincides with news that tax revenue continues to drop. The gigantic size of government debt plus the reported dip in economic sentiment suggests that Japan is in for another rough spell.

Yet all the present doom and gloom commentary fails to explain away what can be seen as good news. While the nation’s problems are apparent in its limited growth, yawning budgetary deficits, the prospect of deflation looming once more on the horizon and a general concern over where we might go next, there is another almost overlooked side to the equation.

The other bit is that Japan’s trade balance is adequate, its current-account surplus is huge and the massive strength of the yen suggests that outsiders take a rather more positive view of the economy than folks in Tokyo. Of course, the rise in its currency is mighty unpleasant for hard-pressed exporters but it can surely be interpreted as a perverse vote of confidence in Japan and its future.

We need reminding, too, that domestic investors are playing it safe as usual and that the swelling government debt is still being financed by remarkably low-paying bond purchases. No other central bank among the leading G-8 nations can boast of its ability to borrow at such remarkably slim rates. Even ever-cautious Germany sees its government bond rates at almost exactly twice those of Japan, while British interest rates on its national debt come in at approximately three times Japan’s and those of Ireland and Greece within the Euroland corset are far higher still.

The willingness of Japanese institutions and individuals to keep buying bonds suggests that things are under reasonable control for the present. Of course, this could change and the ability or otherwise of the Hatoyama government to sort out its public finances must necessarily impinge on future rates but Japan’s credit rating is unlikely to be challenged.

With growth rates being revised downwards and corporations still unwilling to undertake major investment programs in the wake of weak consumer demand, the pessimists are having a field day. For now, though, it might be safer to assume that Japan’s position has hidden strengths and that it comes out pretty well when comparisons are being made with other major economies.

Ask yourself ,for example, whether Hatoyama or Britain’s Gordon Brown has more sleepless nights over the state of their economies and the answer can hardly in doubt. Hatoyama has loads of problems over keeping his coalition partners on board and has yet to solve the Okinawa U.S. base issue, but the underlying resilience of the economy should not be overlooked. The chances are that Japan will sail on while others face shark-infested seas.

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  • 0

    Eccoman

    I suppose one difference between Hatoyama and Brown is that Hatoyama has inherited his mess, whereas Brown has played a large part in creating the UK's one.

  • 0

    LostinNagoya

    errrr...don't you mean "what's down with Japanese economy?"

  • 0

    GJDailleult

    The other thing you could add that Japan has going for it is that it doesn't have the massive amounts of private debt that the USA, UK, and others have. Public debt/GDP is the world's highest, but in terms of total debt/GDP other countries are in much worse shape.

  • 0

    minello7

    The Japanese manufacturers have to be more agressive in the world market place,throw away the manual,and start from scratch.The bubble economy is long over,its cut throat business now.China and India are the economies on the rise,plus they can do business using the English language. Don't rely on the governments to bail you out,they are the one's who got you into this mess in the first place. I know culture has a lot to do with this, and it is hard to change that mentalitity.There is a place in todays world for culture ,and we should not forget that,but it has to work along side the agressive nature that is required in todays business world.

  • 0

    5SpeedRacer5

    It's true GJD, that relative lack of private debt keeps Japan from sloshing back and forth from bankruptcy to bankruptcy. Korea, for instance, is flopping around like a fish trying to get stability while Japan moves along pretty well in one direction... slowly slowly....

    Look at the trade deficits too... bigger than ever. What it is coming down to is that Japan is making money on capital and trade that is made competitive by capital. Capital. It has tons of capital. If things keep going this way, Japan will be a nation with 10 million millionaires with 20 million robots. The rest of us will just have to die off quietly.

    I mean, seriously, a 1% interest rate and a crummy stock market and Japan still sucks money from the moon.

    It is a bizarre situation that appears to be unique in the world. Maybe the Saudis have a similar problem, but unemployment there is called relaxation.

  • 0

    kyoken

    Henry Hilton lacks understanding of the Japanese system of credit ordering. The Government can lend the money cheaply from its citizens only because it can subtle force the pension and insurance institutions to by the bonds at a ridicules low level.

    Certainly there is still plenty of money in the pocket of the Japanese to run this show for some other years, even centuries. But the Japanese population is paying an increasingly horrible price for this as their money does not "work" due to virtually none existing interest rates and so they still live in pathetic houses and appartments compared with other asian nation, such as Singapore.

    Furthermore with the number of full time employees shifting dramatically to low paid freeters and the government spending the savings of the public, the future for the average Japanese is all dim and doom. Again the average Japanese is paying a horrible price for "Japan as No.1"

    But certainly the government will find enough foreigners who buy the tatemae propaganda and willingly make the world believe that this country is so special and not comprehensible that also this time, somehow magically, it can defy the laws of money and as always "JAPAN PREVAILS". Welcome to the Chrysanthemum Club.

  • 0

    Yelnats

    Interesting thoughts.

  • 0

    kirakira25

    Yeah Yelnats, I agree. I wish I understood more about economics because I find it so interesting reading everyones opinions, but I am just not educated enough in this field to contribute any of my own. Keep `em coming guys, because I am enjoying reading these perspectives on my "adopted" country.

  • 0

    5SpeedRacer5

    I saw something else very recently. A bar graph showing the growth rate of private debt. The US, the UK, Korea, and the whole OECD are at around 8% to 10% growth in private debt.

    Let that sink in. That is ASIDE FROM government debt, people are still borrowing more. A lot more. Every year.

    Japan? -2%. Yes. Japanese people have less debt than they had last year. They aren't borrowing. They aren't spending. What are they doing? Working and saving. Working and saving. Cutting up credit cards, paying off their homes, and working and saving.

    Why is everyone so worried? When you think about it, is the J government really really crazy out of control? Does not seem to be. Maybe people should relax and go buy a car. Go out to eat and talk with the kids.

    It does not mean that Hilton is necessarily right about things, but it is true.... there is a lot of good and bad out there.

  • 0

    stirfry

    the japanese economy hasn't been up for years...recession is 20 years and counting

  • 0

    Junnama

    One word: overcapacity

  • 0

    JustAGoodOlBoy

    Not Entrepreneurial friendly.

  • 0

    Sarge

    Everyone's sayin' the Japanese economy sucks. Heck, you'd never know it walking around Roppongi Hills or Tokyo Midtown or Shibuya or...

  • 0

    kyoken

    What are they doing? Working and saving.

    Exactly as the government wants them to do to keep the postal bank and live insurance companies flooded with money so that they can buy government bonds at virtually no interest.

    But all this money on the bank does not "work" as in other countries as there is virtually no interest rate. The Americans safe these days about 4% of their disposable income (way up from last years 1.6%) and the Japanese safe around 15%; but with virtually no interest rates in Japan, the lavishly living Americans are still better off than their Japanese counter parts in 10 - 20 Years down the line.

    So it is all about the old slogan “Poor people, strong state”.

  • 0

    shinjukuboy

    The way economic journalists have written about Japan for the past 20 years, you'd think we must all be living in mud huts by now. Daily life here is quite nice, and in Tokyo, it is great (of course, Tokyo is a huge repository of wealth, I'm not sure about outside Tokyo - or Shinjuku for that matter). People have been writing off Japan since I got here 30 years ago, but it still chuggs along. I'll take Japan any day. Anyway the granny next door says we are all whimps, and if we really want to know what a "hard life" is, we should have been here just after the war. Now is nothing compared to then.

  • 0

    medievaltimes

    It sucks.

  • 0

    Gaijinocchio

    The chances are that Japan will sail on while others face shark-infested seas.

    I disagree with this statement. To continue that metaphor: Japan already went through the shark-infested waters other countries have yet to face, and survived, but sails with a tattered, sinking ship...directly into a whirlpool known as deflation.

    There was a mutiny, and the new captain is a lying, bungling, mama's boy (no different from the last captain.). Each year more sailors are sent to old Davy Jones' locker, and the foreign crewmen want to abandon ship!

    If deflation truly engulfs S.S. Japan, it's doomed for good.

    From a business perspective (foreign investment, etc.) all are shifting to China and India. The emerging markets. Japan has for FAR too long erected barriers to entry, tariffs, taxes, and "Japan does things differently" to stay afloat; those barriers still exist to this DAY. Businesses know this, and no amount of tatemae can hide it come 2010.

  • 0

    shinjukuboy

    Gaijinocchio, even a very nationalistic Chinese guy I met in China said you have to admire Japanese because they never let themselves get colonized by Europeans, and they have never let foreigners suck out their wealth. From T Boone Pickens in the 80s to Steal Partners now, we've seen them come and go, and they have never managed to suck out any of the wealth. Yeah for the Japanese.

  • 0

    mrazekjeff

    Shijukuboy, I agree, life is quite good here and your "granny next door" knows the bottom line. Still, to assert "they (foreigners) have never managed to suck out any of the wealth" is debatable. I think most of us agree to some extent that time is money and there are plenty of foreign corporations who set up here back when labor was cheap and have extracted more than enough wealth and are now moving on to the next cheap source. It all comes down to global equilibrium which will forever balance things out and plenty of nations have had it overly good for more than awhile.

  • 0

    shinjukuboy

    mrazekieff, I agree that many foreign companies have set up and produced and sold here, sending large profits back home. They actually produce someting. I was referring to the "vultures" that don't make anything, don't employ people, etc., but just come to take advantage of financial machinations to suck out wealth. Koizumi's reforms went a long way to make this possible, but now the ruling party is retrenching, moving away from Koizumi's "American dream". I mean, good grief, Kamei Shizuka of all people is back in power. Talk about retrenchment! Retrenchment to socialism (and I'm not saying that is bad).

  • 0

    JeffLee

    never let themselves get colonized

    Japan WAS colonized - by the Americans from 1945-1952. The US dictated a new constitution, sweeping land reform, abolition of the zaibatsu corporate groups, dismantled the aristocracy, etc., etc., all measures that stand today. Much of postwar Japan's main political and economic instutions were created by a foreign power.

    The 19th century Europeans were never interested in Japan because it had no natural resources. Modern Western business leaders aren't so interested in Japan for FDI because it's a low-profit economy.

  • 0

    shinjukuboy

    JeffLee, it is unfair to China (and to all the other colonized countries) to say that Japan was colonized in the same sense that it was. Japan wasn't "colonized" (take over, steel the wealth, and send it back home) because there was nothing to colonize. It had been bombed back to the stone ages. One critizism of the Occupation, which only lasted 6 or 7 years, is that it did not go nearly far enough, and what you have now is simply the same system, only with a different, nice sounding, set of names.

    I disagree about the "low-profit economy". One reason everyone from T Boone Pickens to Steal Partners are trying to get in is that Japanese companies sit on such a huge pile of wealth -- in spite of saying "we're so poor!" Japan doesn't really need FDI. They have lots of money. Japan is the one who does FDI.

  • 0

    Orchid64

    International investment is not a bad thing, nor is it an attempt to siphon off Japan's wealth.

    There appears to be a naive notion that all debt is bad debt and that Japanese people having no debt is the best thing for Japan's economy. Debt which is not secure and does not lead to greater long-term security is not necessarily a positive thing, but some level of debt fuels the economy. One of the reasons Japanese people have so little debt is that they can't buy homes which means they can't secure their future. With high inheritance taxes, there will eventually be a loss of the middle class lifestyle that most Japanese enjoy and the threat of an impoverished older generation in the future as parents pass away and their children can't pay the taxes on their properties or buy new property.

    Right now, Japan's economy holds somewhat steady as a result of favorable export laws, particularly when it comes to having access to the American market (which offers fewer barriers to imports than Japan does) and their technological superiority. They sell expensive goods which are at the top of the line in technological advancement. If either of those benefits starts to erode through time (a risk if Japan experiences a brain drain or the number of young people who can fuel their workforce continues to diminish), Japan will experience serious problems since it has little else to offer or to sustain itself with from an economic viewpoint. The lifestyle of the Japanese will have nowhere to go but down from that point.

    Also, frankly, anecdotal experiences are absolutely irrelevant and I can't believe some people are so myopic. 'My life is good and I live in Japan' has nothing to do with the strength of the economy. There are people who live well all over the world, even in the face of great poverty. The experiences of a handful of individuals on an English language news site are of absolutely no value in discussing this topic.

  • 0

    shinjukuboy

    Orchid64 said: "The experiences of a handful of individuals on an English language news site are of absolutely no value in discussing this topic."

    This begs the question "why on earth you are writing here?"

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