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Light at the end of Japan's economic
tunnel?
By Richard
Hanson
TOKYO - For more than a decade, Japan's
economy seemed to be in that long, dark tunnel of
prolonged recession or low economic growth. So it's only
natural that a positive turn of events - such as rising
growth figures - can very easily be seen as the
flickering of light at the end of that tunnel.
Much of that light comes from China's dazzling
economic growth helping the Japanese economy. The
question is whether for Japan the light is real, or just
a flicker.
That light came in the form of the
fastest estimated annual growth rate for the gross
domestic product (GDP) since 1991 - the first year in
what became a very gray 13-year-long stretch of
recuperation from the bursting of one of modern
history's most spectacular economic bubbles.
The
aftermath of that economic madness of the latter half of
the 1980s is still felt, most evidently in the
continuing - though slower-paced - pressure of deflation
in the economy. Deflation has pushed down the price of
virtually everything that consumers buy, especially land
and other property.
About the only thing that
rose consistently over the past decade was unemployment,
which is still at or near record rates - 5.6 percent for
male workers. The other most visible legacy is a banking
system that is still, particularly among smaller
regional banks, recovering from an astounding
accumulation of bad loans. These are centered on the
collapse of the property market.
Only about year
ago, the banks finally were given some relief - after
the government intervened - by a welcome recovery in the
stock market. Stock prices soared from the day after the
nation's fifth-largest bank was taken over by the
government. Rising share prices helped refloat the
financial system.
Meanwhile, a decade of
internal restructuring by the best of Japan's industries
began to pay off in rising sales and profits. Japanese
industry in general is more competitive than it has been
since the early 1980s.
What is taking more time
is repairing the damage to consumers, who are still
reluctant to spend. This is natural given the weak state
of employment. What is more worrying, perhaps, is that
the once-high rates of personal saving have almost
collapsed. Household saving rates, once over 10 percent
of income, have fallen to less than 3 or 4 percent, and
perhaps into negative figures, with people drawing on
savings to live.
This is why the governor of the
Bank of Japan, the central bank, still maintains a
policy, adopted in the late 1990s, of zero-interest
rates in official lending to financial institutions, and
continues to pump the economy full of cash. The hope is
to stimulate inflation.
The numbers show that
economic growth was running at a "real" annual pace of 7
percent in the October through December quarter. This
reflected a 1.7 percent jump in the amount of all goods
and services produced by the economy during that
three-month period, after adjusting for seasonal and
other quirks, such as deflation. This was the fastest
growth since the April-June quarter of 1990, which was
almost precisely the start of the real collapse in stock
market prices, followed shortly by falling land prices.
In April 1990, it was obvious to doomsayers that the
record high in the Nikkei 225 stock index of over 39,000
months earlier in December 1989 was gone, At the moment,
the Nikkei 225 is still just a bit over 10,000.
Back to the current good news.
Among
other things, this helps explain why last November,
Japan's ruling Liberal Democratic Party (LDP), and its
leader Prime Minister Junichiro Koizumi, were able to
stay in power against a spirited challenge by a
credible, though still untested, opposition Democratic
Party of Japan (DJP). Big business in Japan remained
staunchly in support of the LDP, in part because it has
been supportive of business.
This is not because
Koizumi has produced sweeping reforms of the economy and
of the corruptible sectors of public works and other
government-protected areas - rather it is because the
prime minister has been ineffective in pushing reforms.
The broader economy in Japan has benefited
greatly from extraordinary developments outside of the
Japanese economy. The most important "miracle" has been
the growth of China. The surge in demand for goods from
China has supported industries in Japan that a decade
ago were tottering on the brink of failure.
These include steelmaking and other high-tech
producers. In return, China has flooded the world with
cheaper goods that have helped keep stable the cost of
living for Japanese consumers. This China boom is too
new to anticipate its long-term implications for the
world.
But it does remind some that economies
are by their very nature dependent on the unpredictable.
As it turns out, the flickering at the end of the
Japan's long, dark tunnel was in large part the bright
light of China.
There is no telling, however,
whether China's roaring economy might also find itself
eventually entering the tunnel of its own bubble, the
signs of which are hard to discern until the lights
begin to flicker out.
(Copyright 2004 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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