TOKYO - While there is growing talk lately of Japan's economy logging its
longest expansion since World War II, many ordinary Japanese do not feel their
lives are as good as the economic numbers would imply.
A recent spate of upbeat economic data, coupled with record corporate earnings
and the highest stock prices in years, has left government officials and
business leaders, as well as economists, increasingly convinced that the
world's second-largest economy is on a solid growth track. They now believe the
current expansion will probably continue until at least this autumn and outlast
the
longest postwar expansion of the 1960s, known as the Izanagi boom. That record
boom started a year after the 1964 Tokyo Olympics and ended with the 1970 Osaka
World Expo.
The expansion trend has continued uninterrupted since February 2002, apparently
tying the 51-month-long "Heisei bubble boom" (December 1986-February 1991) as
of this month. If the current expansion continues until November, it will
outlast the 57-month-long Izanagi boom (November 1965-July 1970). Economy
Minister Kaoru Yosano predicted recently that the current trend of growth would
continue until the summer of 2007.
The government's official analyses of business cycles are based on the outcome
of assessments by an expert panel set up by the Cabinet Office's Economic and
Social Research Institute. The final assessment about the start and end of a
cycle usually comes about one year after it has ended. Until that assessment
has been made, the official benchmark will be the Cabinet Office's Monthly
Economic Report, which is based on a wide range of economic indices, including
housing starts, corporate capital spending, trade statistics and personal
consumption. The office maintained its upbeat economic assessment in its
monthly report for April.
Without an economic upturn, any government cannot survive for a long period,
political pundits say. Japan's political history has demonstrated this truth:
early this month, the number of days that reformist Prime Minister Junichiro
Koizumi had been in office surpassed the tenure of former prime minister
Yasuhiro Nakasone, making the Koizumi administration the third-longest since
World War II, after those of Eisaku Sato and Shigeru Yoshida.
After the early-1990s bursting of the "bubble economy", when the economy was
mired in a prolonged stagnation, Japan saw many changes of government before
Koizumi took office in April 2001. During the Izanagi boom, Sato served for
seven years and eight months, from November 1964 to July 1972, becoming the
longest-serving Japanese prime minister in the postwar period.
In Japanese mythology, Izanagi and his wife Izanami are the deities who created
the Japanese archipelago and its gods. In the current economic expansion,
however, many ordinary Japanese people do not seem to be rendering thanks to
any god. In fact, the current boom is still anonymous, with no name - divine or
otherwise - given yet.
Critics even claim that any recovery that goes unnoticed by the public should
be written off as just an "unofficial record". What differences are there
between today and the period of the Izanagi boom? Why haven't ordinary Japanese
people realized as much benefit from the current boom as the talk of a new
growth record suggests?
Constellation of upbeat figures
Without question, the expansion has brought many positive effects.
Concerns over Japanese financial institutions have eased significantly as the
once-huge mountains of bad bank loans returned to normal levels. Major
companies have cleared away the legacies of the late-1980s bubble economy that
had long weighed on their fortunes - excess debts, equipment and labor - and
are expected to report record profits, for the third consecutive year, for the
fiscal year ended March 31. The average stock price on the Tokyo Stock Exchange
(TSE) rose by about 40% in 2005. Reflecting the increasingly upbeat outlook,
the bourse has continued to rally, with the benchmark 225-issue Nikkei stock
average reaching its highest level in six years to top the 17,000 mark on March
31, the final day of fiscal 2005.
Industrial output in 2005 posted its highest level since 2000. Unemployment
declined for the third year in a row in 2005, to 4.4% from 4.7% in 2004 and
from 5.4% in 2002. The jobless rate for February stood at 4.1%, the lowest in
seven years and seven months. Pay raises offered in this spring's annual wage
negotiations are believed to have been higher than last year.
Amid the improving job environment, consumers are loosening their purse
strings. The consumption propensity of Japanese wage-earning households,
measured by the ratio of household spending to disposal income, registered its
highest level in 15 years, at 74.7%, in 2005. Japan's gross domestic product
(GDP) expanded for the fourth quarter in a row during October-December, posting
robust 1.4% growth from the previous quarter and annualized 5.5% growth in real
terms.
Also, deflation seems to be nearing an end at last. The core consumer price
index (CPI), which excludes volatile prices of fresh foods, has been on the
rise since November. The Cabinet Office announced recently that the
supply-demand gap (excess supply) was eliminated in GDP during the fourth
quarter of 2005, meaning that demand outstripped supply for the first time in
about eight years.
Early last month, the Bank of Japan (BOJ) made a significant policy change,
scrapping its five-year-old "quantitative easing" policy and returning to a
more conventional, interest rate-based regime, although it has vowed to keep
short-term interest rates around zero "for some time."
In late December, the Koizumi government projected modest economic growth of
1.9% in real terms in fiscal 2006, which started on April 1 - 1.5% from
domestic demand and 0.4% from exports. It also forecast that the CPI will
register a year-on-year rise of 0.5% and that the GDP deflator, which reflects
general price movements, will inch up by 0.1% in fiscal 2006. As "various
economic figures are all showing signs of improvement", the Japanese economy is
on track to grow by more than 2% this year, Economy Minister Yosano said.
Still, there are some potential risk factors that could derail the current
expansion, including possible sharp rises in interest rates as well as high oil
prices and possible setbacks in Japan's two major export markets - the United
States and China. In the wake of the BOJ's lifting of the quantitative monetary
easing policy, long-term interest rates have been edging up.
Kakutaro Kitashiro, chairman of Japan IBM and head of the Japan Association of
Corporate Executives (Keizai Doyukai), said recently that the current levels of
long-term interest rates, at about 2%, will not have an immediate impact on
individual companies. But any sharp rises in such rates would put heavier
interest-payment burdens on people with mortgages and companies with debts.
Many analysts now expect the BOJ to begin to move toward higher rates as early
as the summer.
Prime Minister Koizumi is to step down in September when his current three-year
term as president of the ruling Liberal Democratic Party (LDP) expires. Some
market participants predict that he will officially declare an end to deflation
before resigning. But such a declaration at an early date could be a
double-edged sword for the government.
To be sure, it would enable Koizumi to bow out amid some triumph. Beating
deflation and thereby nursing the long-ailing economy back to health would
probably go down in history as the biggest accomplishment of his tenure. But at
the same time, an early official victory declaration in the fight against
deflation would take a lot of political pressure off the BOJ. Taking its cue
from such a government declaration, the BOJ might begin to raise rates earlier
and at a faster pace than the government deems acceptable, some analysts say.
Possible sharp rises in long-term interest rates are a deep concern for the
government because they would lead to a spike in government debt-servicing
costs. Therefore, the government does not want to see any hasty interest-rate
hike by the central bank.
Japan's fiscal condition is the worst among major industrialized countries.
Total outstanding government debts, including bills, bonds and other types of
borrowing, totaled 813 trillion yen (US$7.06 trillion) at the end of last year,
exceeding the 800 trillion mark for the first time ever, the Finance Ministry
said recently. This translates into a 6.36 million yen debt per Japanese
citizen. The ministry estimates that each rise of 1% in long-term interest
rates could push up the government's debt-servicing cost by 1.5 trillion yen or
more. The fiscal 2006 government budget calls for 18.8 trillion yen in
debt-servicing outlays. Of this amount, 8.6 trillion yen is for interest
payments.
The good old days?
During the Izanagi boom four decades ago, there were some similarities to
today, but more differences. In the 1960s, characterized by the highest-flying
economy after the war, the so-called 3C products - cars, color TVs and
"coolers" (air conditioners) - were big hits. In the 1950s, the so-called
"three sacred treasures" - refrigerators, washing machines and cleaners - began
to be widely used in ordinary Japanese households.
These days, flat-panel televisions, DVD (digital video disc) recorders and
digital cameras are sometimes referred to as the "new three sacred treasures".
But none of them will change the lifestyle of Japan's people as drastically as
the 3C products or the three sacred treasures of the 1950s did.
As in the current boom, the Izanagi boom started after experiencing a final
meltdown. Japan overcame the "1965 slump" that saw a government bailout of the
now defunct Yamaichi Securities Co. The period also saw many mergers and
acquisitions involving major firms. Nissan Motor Co and Prince Motors Ltd were
merged in 1966. Nissho Iwai Corp (now Sojitz Corp) was established in 1968
through a merger between Nissho Co and Iwai Sangyo Co. Other mergers occurred
in textiles and steel.
In the late 1960s, the average life expectancy of Japanese people was 69.2
years for men and 74.7 years for women, compared with 78.6 years for men and
85.6 years for women in 2004. People aged 65 or over accounted for only about
7% of the total population in the late 1960s, but now they make up 20%. The
unemployment rate was only 0.7% in 1970.
Also, the rate of business expansion in the current phase of recovery is much
smaller than previous expansionary phases. GDP from fiscal 2002 to fiscal 2004
grew only about 1.7% per year after inflation, far smaller than the average
annual GDP growth of 11% to 12% during the Izanagi boom or the average annual
growth of about 5% during the Heisei bubble economy. According to estimates by
the Dai-ichi Life Research Institute Inc, the size of Japan's GDP increased
70.4% during the Izanagi boom and 24.9% during the Heisei bubble boom. But the
GDP had expanded by only 9.8% as of the end of last year in the current boom.
More important, a growth rate in nominal terms, not in real terms, is said to
affect ordinary people's perception of the economic conditions. As deflation
has lingered for a long period, they may naturally feel the economy is not
performing as well as data on real growth rates suggest. In fiscal 2004, the
latest year for which figures were finalized, Japan's economy grew 1.7% in real
terms, but only 0.5% in nominal terms. For fiscal 2005, the government
estimated the growth rate at 2.7% in real terms but only 1.6% in nominal terms.
Last, 2006 is the Year of the Dog in Asian astrology, as was 1970, when the
Izagani boom ended. Some pessimistic people worry that the current boom may
also end or at least lose much of its steam by the end of this year, before
many ordinary people have actually felt the expansion.
Anxiety for the future
The benefits of the current boom have yet to filter through into small
businesses, rural areas and households fully.
There has been considerable disparity in the pace of business recovery between
larger and smaller firms and also between big cities and the rest of the
country. Although unemployment has been tamed, record high percentages of
Japanese people now work as "irregular" (temporary or contractual) employees, a
status lower-paid and more insecure than their regular colleagues. Most
Japanese people are concerned about rising social security and tax burdens amid
the rapid aging of society and declining birth rates. Last year, Japan's
population began to decline for the first time since World War II. The
country's working population had begun to shrink several years earlier.
According to the BOJ's closely watched "Tankan" quarterly survey of corporate
sentiment for March, released early this month, the key diffusion index (DI)
for large manufacturers stood at plus 20 and that for large non-manufacturers
at plus 18. The DI for small and mid-size manufacturers remained at a
lackluster level of plus 7, while that for small and mid-size non-manufacturers
was stuck at an even lower level of minus 9. Business confidence figures are
calculated by subtracting the percentage of companies reporting favorable
business conditions from that of those reporting unfavorable conditions.
Land prices are one barometer of local economic conditions. According to a
recent government survey, commercial land prices in Japan's major metropolitan
areas increased as of January 1, for the first time in 15 years after the
collapse of the asset-price bubble. Concerns about a "mini-bubble" have even
been voiced amid soaring land prices in fashionable urban areas such as
Roppongi and Aoyama in Tokyo. In the nation's capital, commercial land prices
gained 2.8% while residential property gained 0.8%, with the greatest gains
seen in Minato and Shibuya wards, where prices climbed 18% and 9.2%,
respectively. But since prices outside of metropolitan areas remain depressed,
overall land prices across the country are still on the decline, falling 2.8%
from a year earlier, although the pace of decline slowed for the third year in
a row.
Meanwhile, although Japanese companies have begun to add to their payrolls, a
record high percentage of people - about a third of the total workforce - are
irregular employees who are paid less than their regular colleagues and whose
jobs are more unstable. According to the Internal Affairs and Communications
Ministry, the number of irregular workers stood at 3.6 million in 2005, up
slightly from 2004. The number of people in temporary work was about 1.06
million in 2005 - more than double the 2003 figure of 500,000. After years of
slashing the number of regular workers in favor of irregular ones to cut costs,
however, Japanese companies are beginning to hire more regular workers, amid
the ongoing economic recovery and an anticipated mass retirement of
baby-boomers in 2007.
While Koizumi and other coalition politicians tout the current economic boom as
a result of his government's strenuous reform drive, many analysts attribute it
more to years of painstaking restructuring efforts by private companies.
Opinion polls also suggest that most Japanese people want the government to
address the issues of rising social security and tax burdens, rather than
further structural reform of the economy.
Furthermore, concerns about the flip side of Koizumi's reform drive, namely the
widening disparity between rich and poor or between winners and losers, have
been voiced broadly, even from within the coalition, as well as the opposition
camp.
Mikio Aoki, chairman of the LDP caucus in the Upper House, voiced concerns
early this year about a nation being polarized between "those in bright and
[those in] dark skies" of society, with the disparity widening. The leader of
LDP coalition partner New Komeito, Takenori Kanzaki, also said early this year
that "the distortion that may be called a 'shadow' of progress in structural
reform is spreading at the edge of Japanese society".
Koizumi has denied the widening of a gap between rich and poor. But most
Japanese think differently. According to a recent survey by the Yomiuri
Shimbun, Japan's largest daily, the public assessment figure for the
performance of Koizumi and his cabinets over his five years in office stood at
a record high 70%. But at the same time, nearly 60% of respondents thought the
divide between the rich and the poor has widened because of Koizumi's
structural reforms.
Statistically, the income gap did grow. Japan's Gini index reading - the Gini
index is a gauge for measuring the degree of income inequality in a population
- has been steadily on the rise for a long time, showing widening income
disparity. But some analysts, while conceding the widening disparity, have
suggested that the phenomenon is not necessarily related to Koizumi's reform
programs.
Professor Takeshi Sasaki of Gakushuin University in Tokyo wrote in a recent
newspaper article that in the bygone days of high economic growth, opinion
polls would consistently show 70-80% of the public considered themselves middle
class. This led some analysts from abroad to comment, albeit sarcastically,
that despite being officially touted as a free-market showcase, the Japanese
economy should be called the most successful socialist economy in the world, he
wrote. "A disintegration of the middle class seems to be happening - and the
public knows it."
Be that as it may, the intensifying debate over the widening disparity in
wealth has posed a fundamental question to the Japanese public: What kind of
society do they want? At the moment, it seems that many Japanese do not want to
see their society become one in which once a person becomes a winner, he or she
will always be a winner, and once a loser, always a loser.
In an apparent sign of the public mood, Koizumi's ruling LDP suffered a defeat
last weekend in what was probably the last major election before the prime
minister steps down in September. The Democratic Party of Japan (DPJ), the
country's largest opposition party, clinched a much-publicized House of
Representatives by-election in a constituency in Chiba prefecture, adjacent to
Tokyo, on Sunday, with a victory by its 26-year-old female candidate, Kazumi
Ota, over an LDP candidate and three other contenders.
The election victory gave a boost to new DPJ leader Ichiro Ozawa, while Ota
became the youngest member of Japan's parliament. In her campaign, Ota accused
Koizumi of widening disparities in income, education and other aspects of
society during his five years in power, and vowed to work for a society that
has "nobody left behind".
Hisane Masaki is a Tokyo-based journalist, commentator and scholar on
international politics and economics. His e-mail address is yiu45535@nifty.com.
