http://business.timesonline.co.uk/tol/business/economics/article57803...
Japan falls into spiral of despair
Michael Sheridan
NIGHT after night, the casualties of the new recession shuffle to
their beds in makeshift shelters of cardboard boxes lining the steps
of Tokyo station and the capital’s parks.
They huddle in the glow of lights that burn late into the evening in
the mighty skyscrapers of corporate Japan and the Shinjuku government
quarter.
The workaholic habits of a post-war generation have not ceased but the
job for life, central to modern Japan’s social bargain, is in decline.
Unemployment rose to 4.4% at the end of 2008 as household names such
as Honda, Panasonic, Sony and NEC laid off tens of thousands of staff.
As the world crisis has unfolded, it has delivered one unpredictable
blow after another to Japan.
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Toyota, revered as the most-efficient carmaker in the world, has
admitted its first loss in 70 years. The great exporters like Canon
saw earnings plummet, owing to a fall in demand and a sharp rise in
the yen. Nomura, the corporate-finance broker, faces losses from its
acquisition of Lehman Brothers’ Asian business.
It is all going to get worse, according to a survey of 10 bank and
brokerage economists by the leading business daily, Nihon Keizai
Shimbun.
Japan’s economy will contract by 4.1% this year, they predicted, and
half of those surveyed felt it would not touch bottom until 2010. That
prospect has already set off a political upheaval that could end the
post-war order.
The governing Liberal Democratic party (LDP) has warned that the
suicide rate ? always a barometer of financial distress in shame-
conscious Japan ? is rising fast. In 2007 more than 33,000 Japanese
killed themselves. More than half of those who took their own lives
were unemployed. However, the deepest shame last week was reserved for
the ruling class.
Finance minister Shoichi Nakagawa had to resign, citing health
reasons, after a disastrous performance when he appeared to slur his
words and lose his grip at a Group of Seven summit in Rome.
While most Japanese politicians, like their British counterparts, are
not averse to a drink now and then, to many Nakagawa’s embarrassment
symbolised the disarray of their elite.
As bitter faction-fighting inside the LDP and the bureaucracy
contributed to a sense of paralysis, some commentators thought the
party was writing its own suicide note.
The government of Taro Aso, a nationalist on the right of the LDP,
seemed on the verge of disintegration. The premier’s own approval
ratings fell below 10%.
“The days of the Aso administration appear to be numbered,” declared
the liberal Asahi Shimbun in an editorial.
Many Japanese business-men worry that the decline in the economy is
too rapid to allow a typical drawn-out power struggle. Without
decisive leadership it is impossible to forge strong policies uniting
Tokyo’s formidable bureaucratic and political fiefdoms.
Monetary and fiscal policy, plus key economic legislation such as the
government’s 2009 budget, traditionally require a search for consensus
between the cabinet secretariat, the ministry for economics, trade and
industry, the finance ministry and the Bank of Japan.
“This dismal situation and continuous political struggle create
nothing but political vacuum, and unless leaders can show a clear
lead, precious time will be wasted,” said Mutsumi Nishida, a
commentator for the Nihon Keizai Shimbun.
Economic reformers clustered round the former prime minister Junichiro
Koizumi are criticising the present government and calling for radical
economic restructuring.
They face a backlash, though, because a heated debate has broken out
over whether Koizumi’s legislative attack on the lifetime employment
system between 1999 and 2004 has made things worse.
If the long years of stagnation between the bubble economy of the
1980s and the Koizumi period purged Japan of many illusions, corporate
loyalty was one of the last to keep its grip on the popular mind. Now
it is in danger.
About one third of the Japanese workforce is now on short-term
contracts and it is these people who are losing their jobs first ?
almost 90,000 last December alone.
The use of low-paid temporary workers allowed company profits to grow
during the country’s expansion from 2002 to 2007. But now society is
picking up the bill as the jobless drift onto the streets, are denied
unemployment benefits and are often kicked out of their company
accommodation.
In a system that values harmony and consensus, the growth of polite
poverty is a challenge to the political order.
A professor of Marxist economics at Kanagawa University, Akihiro
Matoba, has helpfully come forward to proclaim that “monopolistic
capital is a tormented wild elephant that tramples people in a violent
struggle”.
While few Japanese think Marx offers a solution, the professor struck
a chord by stating that the recession is in reality a depression and
that “everyone is too fearful to mention it”.
The government hastily announced improvements in unemployment benefits
for contract workers and moved to provide social housing for 500
jobless people who set up a protest camp near the Imperial Palace in
Tokyo.
Traditional politicians in the LDP are already arguing for heavy
government infrastructure spending of the kind that adorned 1990s
Japan with empty highways and bridges to nowhere.
The idea appals reformers who believe the future lies in making the
private sector more dynamic. It also worries fiscal conservatives who
fear adding to the mountain of public debt.
It has prompted reformers to talk of a split in the ruling party,
which has governed almost without interruption since 1955, to create a
“New LDP”.
Elections to the lower house, due by September, will force their hand.
Many commentators suggest there will be a grand redrawing of Japanese
politics. Financial analysts fear the economy will go down while it
happens.
Falling exports, reduced production, cuts in capital spending and
unemployment are creating a vicious circle that perpetuates decline,
according to Meiji Yasuda Insurance.
Others say Japan can reinvent itself as it has done twice before,
opening up to the world in the 19th century and building on the ruins
of defeat in 1945.
“Given the declining population and ageing society, Japan cannot be
expected to create large domestic demand,” said Takao Kitabata, a
veteran insider at the ministry of economy, trade and industry.
He believes Japan will gain if China, its giant neighbour, can
maintain target growth of 8% for 2009 and points out that China is
rapidly producing people who consume almost as much as the Japanese.
“There is no way but to prosper together with Asia,” he wrote in the
Nikkan Kogyo daily, arguing that Japan can contribute technology,
electronic appliances, cars and, eventually, robots.
Analysts have also belatedly discovered the “soft power” of Japanese
pop culture, which is taking Asian markets by storm and generates
income for software, IT, fashion, food, music and broadcasting
industries.
The optimists see emerging markets in Asia sustaining demand for
Japanese exports and believe that China will precede America out of
recession.
Currency forecasters at Sumitomo Mitsui Banking also expect the yen to
lose some of its strength, relieving pressure on exporters. They
predict the yen will trade at 100 to $1 by mid-year, against 93 last
week.
Veteran Japanese officials recall how their economy adapted to the
1970s oil shocks and to the highly valued yen of the 1980s. For all
its woes, Japan is a country of deep, quiet wealth. Last week fashion
house Ermenegildo Zegna went ahead with the opening of a prestigious
store in central Tokyo and French chef Alain Ducasse is offering
diners a ￡375 montrachet wine-tasting dinner at his restaurant this
weekend.
However, few Japanese voters find their leaders to their taste these
days, and a tide of change looks set to sweep the land. After all,
tsunami is a Japanese word.
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