Japan Tries to Sell Optimism, but Public Isn’t Buying

As usual here in the spring, the cherry blossoms are lovely but ephemeral. And so, say Japan’s numerous Cassandras, is the government rhetoric on how the economy has finally hit bottom and will soon begin to flower again.

In what is becoming an intractable problem for the Japanese government’s attempts to boost the economy by boosting confidence, many economists, analysts and ordinary citizens profess such a lack of faith in government economic pronouncements that even if the corner has indeed been turned, few people believe it and act accordingly.

On Friday, the long-moribund Japanese stock market rallied to its highest level in more than a year. But the buyers were mostly foreigners cheered in part by recent reports from blue-chip companies that are finally starting to lay off workers by the thousands.

The hunkered-down public isn’t buying the stocks any more than the happy talk--not least because people have no extra money to spend.

Statistics released this week show that household spending fell 3.8% in February, while incomes were absolutely flat. And the Japan Federation of Employers’ Assns. announced Friday that wage hikes will be the smallest this year since 1956. Recession-racked major companies are offering an average raise of just 2.2%, rejecting their workers’ arguments that only increases in income will lead to greater consumption and bring economic recovery.

After last week’s news that Japan’s unemployment rate had hit a postwar high of 4.6%--worse than the U.S. jobless rate--media here reported that most people believe unemployment is even worse than government statistics show. Workers interviewed in a bustling downtown lunch spot Friday--as the Nikkei stock index was breaking through 17,000 before falling back to close at 16,855.63, the best showing in more than a year--scoffed at the government view that the gross domestic product will grow this year by 0.5%.

“I don’t believe it,” said businessman Toru Kotani, 37. “If you look around this building at lunchtime, it looks lively, but when you get back to the office, everybody is sitting quietly at their desks thinking about risutora”--restructuring, the latest Japanese euphemism for mass firings.

Meanwhile, management consultant Kenichi Ohmae, author of “The Borderless World,” reflected the skepticism of many economic professionals.

“This is the seventh consecutive year where, in the first half of the year, they say, ‘Toward the end of this year it’ll be OK.’ Even Pavlov’s dogs would learn, but not this time,” Ohmae said. “That’s the spooky thing about Japan Inc.”

“What’s unusual,” Ohmae said, “is that the government is still trying to fudge the numbers on unemployment [and] still trying to persuade chief executives to behave” according to the old rules by which companies were expected to keep on unneeded employees during temporary downturns in exchange for government subsidies.

Despite the pervasive gloom, Prime Minister Keizo Obuchi’s popularity rating has doubled since October, though it was so low to begin with that even now fewer Japanese support him (35.4%) than don’t (36.8%), according to the latest Nikkei newspaper poll.

Recent economic reforms--notably torrential public spending to stimulate the economy and stiff measures to clean up and prop up the nation’s debt-laden banks--have prompted foreign analysts and Washington to tone down the public tongue-lashings they’ve been inflicting on the Japanese leadership for the last two years.

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But cynicism about the economic “hype” coming from Obuchi’s government is endemic here. Economic Planning Agency Director Taichi Sakaiya, in particular, had to eat crow after the GDP shriveled 3.2% in annualized terms in the last quarter of 1998--a performance far worse than forecast. Nevertheless, Sakaiya is still predicting 0.5% growth for the fiscal year that began April 1, and 1.5% in fiscal 2000. On a visit to Tokyo last month, U.S. Deputy Treasury Secretary Lawrence Summers noted tersely that the consensus among private economists was “considerably less favorable.”

While Sakaiya concedes that unemployment may yet top 5.2%--Ohmae says 13% is a more realistic figure--he pointed to a Bank of Japan survey of corporate pessimism as evidence that the official growth forecast is justified. Although the survey found that companies had drastically revised their sales forecasts downward, it concluded that the overall “gloom index” for manufacturers had become slightly less bleak for the first time in four grim months.

“Deterioration of the economy is slowing,” Sakaiya said.

Still, critics say it’s the government’s credibility that’s waning.

“Tokyo’s Panglossian pronouncements stem from an abnormally large gap between what officials and business leaders really think and what they feel compelled to say,” noted the Oriental Economist, a respected newsletter. “Much of the elite in Tokyo these days is gripped by the peculiar theory that the economy’s main problem is a crisis of confidence. Companies are too apprehensive to invest and consumers too distressed to spend.

“But, the theory goes, if all were to simply repeat that recovery is right around the corner, confidence would return and the prophecy would then become self-fulfilling,” the newsletter said.

Scold as the government might, consumer tightwads are only behaving rationally, since more firings are clearly to be expected, said Sophia University economist Naohiro Yashiro.

“People will continue to be frugal for many years, and we cannot blame them for that,” Yashiro said, arguing that deregulation and increased productivity are the answer to the national doldrums--not more spending.

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It isn’t just the unfortunate who feel the government will not be able to stop the economic slide.

“A decline in Japanese living standards is inevitable,” said a 58-year-old upper-level manager at one of the blue-chip firms that have recently announced thousands of layoffs--and saw its stock price soar in what many older Japanese view as one of the ugliest and most amoral features of the new global capitalism. The executive’s own job isn’t in danger.

Thus, even while Obuchi is better liked than ever, his government seems to be getting less than the benefit of the doubt.

“I understand the psychological need for reassurance, but doesn’t everyone feel that [the authorities’] words don’t match the real trends?” asked Makoto Ichikatai, 27, who works in the securities industry.

In the recent stock market rally, foreigners have been almost the only buyers, industry sources agree. According to one Japanese market maker, “only the blue-eyed gaijin [foreigners] are buying,” while the “black-eyed gaijin”--Japanese who work for foreign securities firms awash with American and European capital that needs to be invested somewhere--remain bearish. “They know the situation here,” he said.

Agreed Ichikatai: “Everyone here is too insecure to buy.”

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Japan’s Dichotomy

Although Japan’s Nikkei stock index shows strength, the gross domestic product reflects economic weakness.

As the Nikkei Has Revived. . .

March 31: 15,836.59

. . .the GDP Has Declined

March 31: -0.8%

Sources: Bridge, OECD