Japan’s economy is bouncing back, offering a possible model for U.S.
TOKYO — After two decades of economic stagnation, once-mighty Japan is beginning to revive — under policies that some experts say could offer lessons to the still-struggling economies of the United States and Europe.
While the Eurozone tries to break out of recession and the U.S. economic recovery remains anemic, Japan has begun to grow at an encouraging rate.
The shock-therapy policies of Prime Minister Shinzo Abe have helped Japan’s economy expand for three straight quarters at a pace faster than that of the United States.
Its stock market has surged more than 50% in less than a year. Leading automakers and even long-struggling electronics firms such as Sony Corp., beaten down by Apple Inc. and Samsung Electronics Co., are reporting a jump in profits.
The combination of government and financial measures popularly know as Abenomics may finally be snapping Japan out of the doldrums, and that is drawing increasing attention from economists in the West.
Japan’s struggles with deflation and a rapidly aging society are in many ways unique, but some of the problems that have long trapped Japan, including sagging incomes and structural weaknesses, are similar to those dogging the U.S. and Europe.
“It may have quite a lot to teach us,” Joseph Stiglitz, the Nobel laureate economist, wrote recently. “If Abenomics is even half as successful as its advocates hope, it will have still more to teach us.”
Japan’s central bank has begun to pump more cash into its economy, lifting the nation’s exports by reducing the price of Japanese products in the global marketplace.
In addition to adopting strong monetary policy, Abe has boosted government spending to put more money into the pockets of Japan’s citizens. The U.S. and Europe, by contrast, have largely emphasized cutbacks, an approach economic studies suggest have slowed job creation and overall growth.
And Abe is preparing a series of structural reforms, including changes in taxes and labor rules, in the hopes of sustaining the nation’s growth long term.
“This time, Japan’s economic recovery is different from the past,” Akira Amari, Abe’s chief economic minister, said in an interview. “We are matching fiscal, monetary and growth policies.”
Abe will be detailing his growth strategy in October. So far, many Japanese are skeptical, unconvinced that their country is really making a comeback.
Some are wary of Abe, as he served briefly as prime minister before with little success and is widely known to be more interested in pursuing his non-economic, nationalistic goals, including strengthening Japan’s military.
“I don’t feel anything from Abenomics,” said Sadao Yamaguchi, whose family shoe business in Tokyo has been catering to Japanese salarymen for nearly a century.
Yamaguchi, 79, considers his shoe store a bellwether of the Japanese economy.
His business flourished from the years after World War II until the early 1990s, when the country’s bubble economy burst and fell into a spiral of falling prices and wages. Since then, he and his son and daughter-in-law have seen their livelihoods shrink as their middle-class customers hoarded cash and sought cheaper brands.
Though Abenomics has yet to touch ordinary Japanese families such as the Yamaguchis, economists expect the nation to break out of deflation. In July consumer prices rose for a second straight month.
A stronger Japanese economy, the world’s third largest, would help boost global demand. And if Abe can make good on his growth goals, Japan would probably be held up as a model for making tough structural reforms that many countries, including the U.S., have tended to avoid as they have relied instead mostly on monetary stimulus to support growth.
For the U.S., important structural reforms would include policies to bolster infrastructure investment and the skills of American workers, said David Dollar, a senior fellow at the Brookings Institution.
“As the rest of the world looks at the United States’ recovery, it’s worried about too-rapid withdrawal of fiscal and monetary stimulus,” he said during a recent briefing on the upcoming G-20 summit. “And it would like to see the United States move ahead on some of these structural reforms that would make the U.S. economy more competitive and create a solid foundation for U.S. growth going forward.”
As in the U.S., many of the key structural changes that Abe is considering are fraught with political and bureaucratic obstacles, but Abe has a real chance to push his policies through Japan’s bureaucracy and long-paralyzed legislature. His party won a convincing election this summer, reclaiming control of both chambers of Parliament.
Abe’s ministers are considering a cut in corporate taxes for investments and research. At the same time, to bring Japan’s fiscal budget under control, Abe is looking at raising the national consumption tax to 8% from 5% — a risky move that could snuff out the momentum in consumer spending.
The Abe government wants to deregulate the nation’s utility and some other industries that are controlled by powerful oligarchies. And it is also trying to broker a deal between labor and management that would at once increase workers’ wages and give employers more flexibility to lay off employees.
Japanese regulations and social norms have long prevented employers from large-scale layoffs, which give regular employees practically lifetime job security but can hamstring companies with bloated and unproductive workforces.
“Japan has to achieve labor market reform,” said Hisashi Yamada, chief economist at the Japan Research Institute, noting that it would boost not only productivity but also entrepreneurship.
With larger companies protecting workers and generally paying more, he said, everybody wants to join — and stay with — bigger firms. That hurts worker mobility and makes life hard for start-ups and small-business owners such as Keitaro Hiraga, 36, who runs a consulting firm in Tokyo with two employees.
“If you have changed jobs twice before you are 30 years old,” he said, speaking of his own experience, “companies will avoid that kind of person.”
Other Japanese are hopeful that they will eventually see fruits from Abenomics. Some private investments already are picking up, said Takeshi Sakitami, a small-business division manager at a community bank in Tokyo.
Abe scored points with big businesses by pushing Japan into negotiations for the Pacific free-trade pact, despite strong opposition from farmers who stand to lose share to more-efficient competitors.
“We still don’t know if he is different from other prime ministers,” said Kiyoaki Fujiwara, a director at the Japan Business Federation, an influential trade group consisting of the nation’s largest companies. But he said his group was betting on Abe, if for no other reason than that the alternative could prove disastrous.
“This is the last chance to make a comeback,” he said. “If we don’t succeed this time, the Japanese economy is really going to be shrinking.”
