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People film a shower of cherry blossoms at a park in Tokyo, on April 2. Springtime optimism usually coincides with the sakura season, but this year, the sense of hope is palpable and not just due to the explosion of cherry blossoms across the capital. Photo: Reuters 
Opinion
Outside In
by David Dodwell
Outside In
by David Dodwell

Has spring finally arrived for Japan’s zombie economy?

David Dodwell says Asia’s slumbering major economy is showing signs of life. By taking the first steps to build on its reputation for quality, Japan appears to be on its way to regaining its competitiveness

David Dodwell
David Dodwell
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Japan’s economists are calling it “the true dawn”: a glimmer of real hope that, after two decades of zombie growth, Japan might at last be stirring back to life.
You could put it down to the inevitable springtime optimism that coincides with the sakura blossoming season – which came to Tokyo on March 17, among the earliest on record, and was therefore all but finished when I flew into Narita last weekend. 

But I think there is more to it than the extravagant explosion of cherry blossoms across Tokyo’s parks. There is something significant happening.

When I last looked in any detail at Japan’s prospects, I sensed an existentially challenged community. Not only had economic growth stalled since 1990, but rapid ageing signalled the prospect of demographic decline, with the country’s working population shrinking sharply, and the total population expected to slump from 127 million today to around 87 million by 2065. The security of lifetime employment was evaporating, and high costs created a sense of uncertain future competitiveness. Anomic youngsters were recoiling into computer games and cosplay.
The country’s century-long assumption that it was Asia’s No 1 is being challenged by the awesome growth of China. The alliance networks flowing back to the US were looking frail and worn – all the more so since Donald Trump arrived in office with his “America first” mantra.
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Japanese Prime Minister Shinzo Abe takes a walk to view the cherry blossoms in Tokyo's Yoyogi Park on April 1. Photo: Kyodo

But this spring has brought hints of a new competitiveness, and of traditional strengths being burnished.

In fact, a sense that something was afoot emerged about 18 months ago when Japanese officials at the Asia-Pacific Economic Cooperation forum meetings began talking of the need for “quality infrastructure”, rather than just infrastructure. At first, I thought it was just a petulant rebuttal of China’s ambitious “belt and road” infrastructure-building initiative. But there is, at the same time, real substance that businesses in Japan believe can define a newly competitive future. 
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When Mitsubishi Heavy Industries briefed us on the 53-year life of the Shinkansen high-speed rail system, the very first point it made was that since services began in 1964, there have been zero fatalities. Four hundred trains running every day at 320km/h, with a punctuality record of less than a minute of delay on average system-wide, and not a single fatal accident.

A “Quality Japan” brand appears to be emerging that combines not just unmatched quality and safety but also a deeply embedded engineering technology that combines flawless minimalist Japanese style with artificial intelligence and other digital technologies. 

You can sense this in the integrated planning processes at work. The Tokyo government is working with business to revitalise the 120-hectare Marunouchi district around Tokyo Station, at the heart of the city next to the Imperial Palace. 

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Tokyo is a city that is almost uniquely built around the train, keeping cars to a minimum, enabling extensive pedestrianisation, and delivering immensely energy-efficient transport to its population of 38 million. Here is a quality not just driven by aesthetics, but underpinned by a deep-seated imperative to address earthquake risks.

In many ways, the logic is simple: if you are going to provide engineering techniques that protect against earthquakes, then this for sure makes you more costly – and therefore potentially uncompetitive. If you can’t compete on cost, then it has to be on the basis of high levels of efficiency and productivity that on a “total life cycle” basis makes quality affordable, despite the high nominal cost. The same logic surely applies in Germany, too.

A similar effort to transform a problem into an opportunity applies to the country’s burgeoning elderly population. No country has spent more on robots and digital technologies to tackle the impending contraction of its working-age population, and more will be done. Instead of letting the demographic transformation create an unsustainable burden on society, digital technologies are being put to work to enable the over-50s, over-60s and over-70s to stay connected and useful in work. 

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A resident claps to call “AIBO”, a pet dog robot, at the Shin-tomi nursing home in Tokyo, on February 2. No country has spent more on robots and digital technologies than Japan to help its ageing population stay connected and tackle the impending contraction of its working-age population. Photo: Reuters 

Most recent data certainly suggests that some spring has returned to the step of the Japanese economy. After a decade from 2000, during which growth flatlined at around 0.6 per cent, it has averaged more than 1 per cent since 2012, with growth last year at 1.7 per cent, and forecast this year to be at least 1.4 per cent.

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Hosting the World Cup Rugby Sevens next year, and the Olympics in 2020, is expected to bring stimulus, and a significant boost in international interest. The “Quality Japan” concept seems to have been boosting tourism on an unprecedented scale, along with its hard-earned reputation for safety and reliability. From just 8.4 million visitors in 2012, Japan last year greeted almost 29 million, with annual growth of around 20 per cent.
Japan's National Stadium is under construction for the upcoming Tokyo 2020 Olympic Games. Photo: AFP / Jiji Press 
But scratch behind these numbers and an important new reality emerges: three-quarters of Japan’s foreign visitors come from just four economies – South Korea, mainland China, Taiwan and Hong Kong. That says there is huge room for growth, but it also says Japan needs to reconcile itself to its main existential challenge – the rise of China as Asia’s pre-eminent power, and the need to build deep and constructive links. 

The US might have been Japan’s primary economic driver from the end of the second world war, but that is changing. China can for sure deliver “scale”, but it will for some time still be Japan that delivers “quality”. Capitalising on this could provide strong and long-term foundations for future competitiveness. I don’t think it is just the cherry blossom season that is bringing a new sense of optimism.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view

This article appeared in the South China Morning Post print edition as: The blossoming of Japan
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