February brought a shocking piece of news to Japanese people. They learned that their country has become a net importer of consumer electronics–the very goods it had once exported to every corner of the globe. It had already become clear previously that Japan had become an importer of large household appliances, such as washing machines and refrigerators, but statistics for 2010 show that Japan has also become a net importer of digital consumer goods, such as flat-screen TVs. This is not due simply to an increase in imports of goods from overseas. A major underlying factor is that Japanese consumer electronics makers have shifted their production offshore. One manifestation of this can be seen in the electronics megastores in Tokyo’s Akihabara district. Many among the increasing number of Chinese tourists to Japan look forward to shopping at stores in this district. But since last ... ... [Read more]

Change may finally have begun. In the third quarter of 2010, capital investment grew above the level a year earlier for the first time in three and a half years. Shipments of machine tools expanded strongly during the second half of 2010. Early in 2011 Hitachi, Ltd., which has been one of the slowest of Japan’s major corporations to shake up its management, announced that it was reorganizing its operations and reforming its research setup. And even Japan Airlines (JAL), which appeared to be having a hard time restructuring to head off bankruptcy, now seems poised to fly into clear skies. Signs of a business revival are turning up here and there. To be sure, it is still too early to determine whether these scattered developments are indications of a broad-based recovery from the corporate malaise that appears to be the root cause of ... ... [Read more]

In the wake of the collapse of Lehman Brothers in September 2008 and the financial crisis that ensued, the traditional forms of macroeconomic policy lost their effectiveness as tools for managing the US economy. This has compelled the United States to change the direction of its economic policy. The Obama administration, recognizing that its fiscal and monetary policy mix was not expanding effective demand, has launched an effort to create jobs, using exports as the bridgehead. This policy is aimed at doubling exports within five years, based on the idea that the employment situation is unlikely to improve without an export-driven expansion of the economy. Doubling exports within five years will require an average annual increase of 15%. The participation of the United States in the Trans-Pacific Strategic Economic Partnership (TPP) emerged in this context. Originally, the TPP was conceived as a... [Read more]

The employment prospects for graduates entering the job market this year are reportedly the worst on record. This is not because companies are performing especially badly–at least not yet. Results at Japan’s big corporations in particular are not markedly worse than they have been for several years. But recruitment indicators at the big firms are dire. Though small and medium-sized enterprises are much more positive about hiring new employees, new graduates have their sights set on finding a job with a big company–preferably a major blue-chip firm offering maximum security. I am a father myself, with children in college and high school. My work as chief operating officer at the Industrial Revitalization Corporation of Japan also gave me an opportunity to study the structural problems inherent in Japanese corporate culture at close range. The impression I have of young people today based on my ... ... [Read more]

What is to blame for the tough employment situation facing new graduates in recent years? One popular argument that appears plausible at first glance points to the Japanese system of lifetime employment as the root of the problem. Basically, the argument goes as follows. Lifelong employment means that Japanese companies are unable to dismiss full-fledged “regular” company employees, protecting the vested interests of older employees and making it difficult for the poor young things leaving university to find permanent positions. As a result, they are forced to take jobs as irregular hired labor. The remedy normally put forward by proponents of this argument is to make the employment system more flexible. In plain terms, this usually means making it easier to offload the useless old codgers and hiring young people to take their place. Let me start with my conclusion: This argument is nonsense. ... ... [Read more]

In August 2010 the Federal Reserve Bank of Kansas City hosted its regular symposium on monetary policy in Jackson Hole, Wyoming. Attention centered on the paper “After the Fall” by Carmen and Vincent Reinhart, presenting an analysis of how global shocks and financial crises have affected economies since the start of the twentieth century. Their study makes the following points: •Growth rates of real per capita gross domestic product decline by about 1 percentage point during the decade after financial crises. (This means that if the US economy were growing at an annual 3% rate, a crisis would slow growth to 2% for the next 10 years.)•Unemployment rates rise significantly above their level prior to a financial crisis during the decade following it. This is particularly true of the advanced economies, where post-crisis median unemployment rates have been about 5 percentage points higher than ... ... [Read more]

Two years have passed since the bankruptcy of Lehman Brothers in September 2008 triggered the worst economic crisis in half a century. The aftereffects of the “Lehman shock” are now fading, but so, it seems, is the spirit of coordination among governments. The world appears to be entering a phase of currency confrontation, with countries competing to devalue their currencies and boost exports. The Group of 20 meeting of finance ministers and central bank governors in October 2010 produced a communiqué vowing to “refrain from competitive devaluation of currencies,” and the G20 summit the following month reiterated this sentiment. Yet fears of a “currency war” have not abated. Finance Minister Guido Mantega of Brazil–a G20 member–publicly used the term currency war to describe the devaluation efforts of various countries in a speech he delivered in São Paulo on September 27: “We’re in the midst ... ... [Read more]

In June this year, I published a book with the title Defure no shōtai: Keizai wa jinkō no nami de ugoku (The True Character of Deflation: How Population Trends Shape the Economy). A major factor behind Japan’s stagnant economy and the crunch in the country’s public finances in recent years has been the decline in absolute terms of the working-age population and the increase in the population of elderly retirees. Drawing on figures from several comprehensive studies, my book highlighted this fact and discussed the serious impact it was having. I have written this article for a readership of people working in finance who are interested in the vicissitudes of Japan’s domestic economy. As well as sketching out the main points of the argument in my book, I also look at the present and future effects of recent population trends on the economy and ... ... [Read more]

The ruling Democratic Party of Japan is compiling a supplementary budget in excess of ¥4 trillion to head off the growing risk of a slowdown in the recovery. The plan is, however, a prime example of “too little, too late.” If the DPJ had had its act together, it would have had the supplementary budget ready by July, before it began preparing for the September 2010 election of the party’s president. That would have enabled the administration to get the measure passed by the National Diet in August, and implementation of the required stimulus would already have begun by now. As a result of its overly rosy view of the economy’s prospects, the DPJ has laid itself open to the charge that it allowed the contest for party president to get in the way of action it should have taken on the economic front. ... ... [Read more]

ENDŌ ISAO Talking to executives at major Japanese corporations these days, you get a clear sense of their concern over how to position their companies in the marketplace. Ajinomoto, for example, is a leading food producer in Japan, but globally it is up against mega-corporations like Nestlé with overwhelming market shares in many product lines. Japanese companies in other sectors as well are facing off against global giants, as in the case of Kao versus Proctor & Gamble and Takeda Pharmaceutical versus Pfizer. Given the differences in corporate scale, Japanese companies may well feel that they are simply too small to compete successfully. In my view, however, the quality of Japanese companies is such that they should be fully capable of holding their own despite their smaller size, although they seem to be in a process of trial and error figuring out how to ... ... [Read more]