Japan staring into the abyss

PUBLISHED : Tuesday, 24 April, 2012, 12:00am
UPDATED : Tuesday, 24 April, 2012, 12:00am


Now it is at least semi-official: Japan's economy is on the skids. A report just released by a think tank that is part of the Nippon Keidanren, the country's most powerful business organisation, says that by 2050 Japan will no longer be a developed country, and predicts years of declining output from 2030 onwards.

'Unless something is done, we are afraid that Japan will fall out of the league of advanced nations and again become a tiny country in the Far East,' says the report in Japanese by the 21st Century Public Policy Institute (21st CPPI), the research institute of Keidanren.

The report should serve as a wake-up call to Japan's economic and political establishment to take radical remedial reforms. The worry must be that there are few people inside Japan Inc who have a clue about how to remedy the situation, still less the necessary political clout.

Indeed, Japan has lost its way politically, so that it may be hard to muster the imagination or will to rescue the country from sliding backwards. Some economists say Japan is already engaged in a determined effort to commit economic suicide.

The report predicts that in the very best-case scenario Japan's gross domestic product in 2050 will be only one-sixth of China's and one-third of India's, as the country struggles to stay ahead of Brazil as the world's fourth biggest economy. If Japan does not take remedial measures, it will drop to ninth place in the world, behind France and barely ahead of Indonesia.

The reasons why Japan's economy is faltering are predictable enough: a dwindling workforce caused by a chronically low birth rate, together with slowing industrial productivity and shrivelling investment. Japan is the industrial world's trendsetter in ageing population, and last week the government announced its population had fallen by 0.2 per cent to 127.8 million in the year to October.

By 2060, the country's population will have dropped to 86.74 million, according to the health ministry. By 2050, almost 40 per cent of Japanese will be aged 65 or over, compared to about 23 per cent today, itself an unprecedentedly high burden for any country to bear. The working age population will fall from about 63 per cent to 52 per cent.

It is fun to play with figures, but concentrating on them too hard can be mesmerising and damaging to the understanding of the whole picture. My criticism of the think tank report is that it is too static. It almost looks as if the real damage will only occur after 2030 and 2040. The report forecasts that from 2030 onwards Japan's GDP will fall by 0.17 per cent a year, accelerating to 0.46 per cent by 2041 and to 1.32 per cent a year by 2050.

In reality the damage has already started, and the risk is that if quick action is not taken between now and 2020, it may be too late to stop Japan's economy going into a tailspin.

Tackling the real issues is complicated by distracting immediate problems exacerbated by the triple disasters last year of earthquake, tsunami and nuclear meltdown at Fukushima.

The need to take precautions to make sure that Japan's other nuclear reactors were protected against natural disaster was accompanied by popular panic that none of the reactors might be safe in a country sitting on tectonic fault lines where small earthquake tremors are a part of ordinary life and where Tokyo and the surrounding Kanto region are waiting for 'the Big One', already 10 years overdue based on historical expectations.

In consequence today, only one of Japan's 54 nuclear reactors is working and the country's fuel import bill has soared. The impact was seen in the record trade deficit of 4.41 trillion yen (HK$420.92 billion) in the fiscal year to the end of March. Imports of liquefied natural gas to make up the shortfall from nuclear energy are 20 per cent higher than a year ago.

Prime Minister Yoshihiko Noda has expressed his determination to get the nuclear plants operating again, warning that the alternative is electricity cuts of up to 20 per cent in some areas during the sweltering summer. But he is facing determined political opposition to resuming nuclear production.

The other key economic policy that Noda is stubbornly pursuing is to double Japan's 5 per cent consumption tax by 2015. It remains to be seen whether this will lead to his political suicide. Economists are split as to the amount of economic damage that a tax increase will cause.

Even without the disasters Japan's economy was facing problems, especially in its relationships with the rest of the world. The relentless rise in the yen, which hit 75 against the US dollar last year, has damaged export prospects and the confidence of an economy, which has depended on exports for most of the small growth it has eked out recently.

The fall in the yen this year to 81-82 against the US dollar has offered small relief. Industrialists say that only 90-100 will offer them a competitive fighting chance. The yen has remained high against other key currencies, notably the Korean won. All this has led to belated soul-searching within Japanese industry as to whether it should be trying to compete in the global mass marketplace or be moving more aggressively to higher quality production

The early stages of a sclerotic ageing society have seen Japan's social security spending rise to absorb more and more of the budget, and are behind the government push to raise taxes. But the debate has been unimaginative and negative, with little talk of reform that might release new energies to offset the negative effect of the tax increases.

The one possible saving grace that, according to 21st CPPI, would help rescue Japan from coming economic oblivion, would be greater participation of women in the economy. Japan comes a lowly 94th out of 134 countries in the World Economic Forum's ranking for women in the economy. But women still have difficulty moving up in a male-dominated economic world. Just to take a tiny example, only this month did Japan's leading dental school at Osaka University appoint its first woman professor in 60 years, Mikako Hayashi, even though women comprise half of dental students.

The recent diverging fortunes of high-flying Samsung and loss-making Sony illustrate the plight of Japan's once unbeatable technological giants in a world where leading-edge electronics and shipbuilding have gone to Korea, computing and semi-conductors to Taiwan, and mass-manufacturing to mainland China.

But, as the Olympus soap opera demonstrated last week, Japan Inc will close its doors to outsiders when cornered. Michael Woodford, its British president who exposed the dubious accounting and massive losses at the firm, was voted off the board. Leading Japanese even welcome their isolation: the 'Galapagos effect' is a popular term for Japanese technology that works only in Japan.


Japan's population shrank by this much in the year to October 2011, the fastest decline since comparable records began