Japanese PM Shinzo Abe helps big firms but fails to tackle structural problems
The Japanese prime minister's policies have done plenty for big firms, but failed to tackle structural problems left by years of deflation
Abenomics, as the radical economic policies of Japan's Prime Minister Shinzo Abe have inevitably been dubbed, has delighted the country's big industrial and financial players.
The yen has fallen 20 per cent to close to 100 against the US dollar, boosting the country's big exporters. The Tokyo stock market enjoyed its best April in 20 years, with the Nikkei-225 Index up 11.8 per cent.
Big hedge funds have been among the biggest gainers of Abe's policies to end decades of deflation and stagnation. Some funds have scored rip-roaring gains of more than 40 per cent in the year so far, while others have settled for more modest returns of 19 to 36 per cent.
Whether the people of Japan should rejoice yet is a more difficult and probably doubtful proposition. Abe has been long on public relations, but weak on his promises to reform and restructure an economy that has become used to years of deflation as government debts have piled up to 250 per cent of gross domestic product.
The years of the locusts have eaten away more than financial discipline. They have left an economy and society stuck in their ways and bypassed by more imaginative, inventive companies and countries.
For a simple demonstration, compare and contrast Japan's Sony with Samsung of South Korea, two supposedly flagship electronic companies. Sony languishes in losses without a good new product for years, while Samsung has gone from strength to strength, with sales of US$179 billion last year, making it the world's biggest electronics company by revenue, and challenging Apple in the global range of its products. And that is only Samsung's electronics wing.
The economic survey of Japan from the Organisation for Economic Co-operation and Development last month provides a good summary of the problems that Japan faces. It puts emphasis on the need to restore financial discipline, but it has a string of other conclusions and recommendations, some of which will not be easy to accomplish while restoring discipline.
The OECD says Japan needs to turn around the primary financial balance from a deficit of 9 per cent of GDP in 2012 "to a surplus as high as 4 per cent by 2020". The rest of the paragraph on debts hints at the difficulties of accomplishing it.
"Controlling expenditures, particularly for social security in the face of rapid population ageing, is key," the OECD adds. "Substantial tax increases will be needed as well, although this will also have a negative impact on growth.
"Given the size and duration of fiscal consolidation, Japan also faces the risk of a marked rise in interest rates, threatening a banking system that is highly exposed to government debt."
The more pages you read of the 145-page OECD report, the more it reveals a country which has lost its way and is suffering from hardening of its economic and social arteries.
The OECD says that "ending 15 years of deflation is a priority". It expects that the aggressive monetary easing, on which the Bank of Japan has embarked with a will, will boost growth and inflation, partly by weakening the yen.
It utters the mantra, "Japan is not targeting the exchange rate". Perish the thought, or other countries might start competitive devaluations, which would risk putting the global economy on a slippery slope.
They showed the need for reform of the cosy monopolies of the electricity companies and to break the poisonous collusion between big business and bureaucrats, with the latter frequently enjoying lucrative retirement jobs in the companies they previously regulated.
The rapid greying of Japan, with an expected 40 per cent fall in the working-age population by 2050, and the low participation rate of women in the economy, add dangerous edges to the tasks.