[Column]The lost 30 years have changed Japan, evolving into the next era – Reedy – Bloomberg

When I moved to Japan in 2003, the country was looking to emerge from a long period of economic decline. The “lost decade” did not end, and Japan’s economic stagnation continued for the next decade, and the decade after that.

During the rainy season of 2003, when we were hit by long rains, my gloomy mood never seemed to lift.On December 29, 1989, when it was still the 20th century, the Nikkei Stock Average was 38,915.87 yen. Japan’s economy has reached an historic peak, hitting an all-time high. However, since then, the Japanese economy has continued to stagnate.

When I arrived in Tokyo, the world’s largest city, the heavy rainy season front that covered the sky seemed to symbolize the situation in Japan. Still, I didn’t immediately feel an indescribable sense of stagnation.

I came to Japan as part of an exchange program to teach English in Hiroshima, and spent my childhood in Ireland. Like many people my age around the world, I was exposed to a sophisticated and technologically advanced Japanese culture long before I started living in Japan.

However, as I got used to life in Japan, I realized that the country’s economy was being eaten away like a chronic disease. Deflation was deep-rooted, and cost cutting was being carried out everywhere. UNIQLO, a fast fashion pioneer that has just started expanding overseas, Brands like Fast Retailing, which target price-conscious customers, have become popular.

The unemployment rate was just below the post-war worst.The media refers to young people who have dropped out of the labor market, such as “freeters” and “NEETs.” We picked up popular words.

The number of suicides peaked in 2003, with more than 34,000 people taking their own lives. Homelessness has become alarmingly visible. A few months after I arrived in Tokyo, a man approached me in broken English at Ikebukuro Station, got down on his knees and begged for coins.

“Japanization”

In the 1990s, as Japan began to fade from the spotlight, much of the world’s media became preoccupied with the rise of China and paid little attention to the once feared Japanese economy.

Rather, the word “Japanization” was taken up as a catchphrase for “decline.” Westerners ridiculed Japan’s ineffectual politicians who, instead of working on reforms, continued to build seemingly pointless infrastructure.

Howard French, who was the Tokyo bureau chief for the New York Times (NYT) in the late 1990s, said of Japan, “The world is a middling country whose importance in world affairs has significantly declined and is still in decline.” is returning to its rightful place in the wrote.

However, this year, which marks my 21st year in Japan, something is happening.The Nikkei average closed at 39,098.68 yen on February 22nd, the first time in about 34 years. New highest price.Economically too It was also a psychologically groundbreaking event. It’s the result of a combination of painful policy changes, geopolitical imperatives, and sheer luck.

Foreign policy, financial and corporate dynamism, defense strategy, pop culture, and even sports (Shohei Ohtani is now one of the most famous athletes in the world) are all about Japan’s impact more than any breakthrough in the stock market. This shows that it is emerging from a slump.

Nikkei 225’s Three Decade-Long Roundtrip

After more than 34 years, Japan stocks finally hit a new record in 2024

Source: Bloomberg

Japan has not become the world’s answer, but it has avoided the fate that seems to await all capitalist countries: developed countries descend into economic decline. This is a relief for other countries, particularly China, which are increasingly resembling Japan in a lost era.

Prospects and risks

Many foreigners cling to the stereotype of a Japan that no longer exists, a Japan that clings to faded glory, but today Japan is vibrant, full of talented people, and full of confidence.

The late former Prime Minister Shinzo Abe, who was the driving force behind Japan’s recovery, wanted Japan to become a “normal country.” In the past, Japan might have been seen as a country with problems by any other country in the world, but Japan’s current story gives us hope. Decline is not inevitable.

This is not to say that Japan is entering a new golden age. The Nikkei average has already fallen from its all-time high, and Japan now has both promise and danger.

Japan’s economy is on the brink of polarization. Opportunities will expand for those with in-demand skills and those living in populated areas, but life for others will likely remain lifeless.

How will Japan deal with the decline in its workforce? Is it possible to increase immigration without causing chaos like in Europe and America? And how should we confront China? There is a possibility of a direct earthquake hitting Tokyo, or a large-scale earthquake that would devastate the Pacific coast. There is also a fear that a “Nankai Trough Earthquake” will occur, and the public is growing anxious.

However, anxiety is common in ordinary countries. It is not that the people have fallen into apathy. Japan is no longer “a middling country that is still in decline,” but is once again an active player in the world. And it’s not the fearless economic powerhouse of the 1980s. The lost 30 years have transformed Japan and continues to evolve. The plot has changed.

21st Century

When I arrived in 2003, Japan seemed to be turning a corner. The prime minister at the time was Junichiro Koizumi. Mr. Koizumi, who is also the president of the Liberal Democratic Party, dissolved the House of Representatives and called a general election in 2005 in order to pass a bill related to postal privatization, which he positioned as the “main center of reform.” This is the so-called “dissolution of the postal service.”

Mr. Koizumi nominated a young entrepreneur, Takafumi Horie, to run against Mr. Shizuka Kamei, a member of the Liberal Democratic Party who went against his own policies in the Hiroshima constituency where I lived. I remember listening to Mr. Horie’s speech among the excited voters at the supermarket. Politics seemed to be moving in the right direction.

But it didn’t last long.Mr. Horie lost the election and was arrested in January 2006 on suspicion of violating the Securities and Exchange Act. arrested. Koizumi ended his term as Liberal Democratic Party president that same year, stepping down from power halfway through reforms.

Mr. Abe was appointed as the successor prime minister, but Abe resigned after just one year due to poor health. After that, Japan’s prime minister changed every year, and in 2008 the financial crisis shook the world.

Japan Loses Top Status for the Few Partners It Had

China’s importance to world trade surged as Japan’s stalled

Source: World Bank (WITS database)

In February 2011, I moved from Osaka to Tokyo to work at Bloomberg News. The timing came just as it was confirmed that Japan had lost its long-proud title as the world’s second-largest economic power to China.

Just one month later, the Great East Japan Earthquake occurred, killing more than 18,000 people. An unprecedented accident occurred at Tokyo Electric Power Company’s Fukushima Daiichi Nuclear Power Plant.japan again The economy fell into recession, and the lost era continued.

Abenomics

Many Japanese policymakers refused to grapple with the complexity of the crisis, believing that one simple solution could restore the economy. Despite repeated flooding, almost no one dared to say that the ship was sinking.

During the 2008 global financial crisis, the U.S. government learned from Japan’s hesitation and took prompt action. Now is the time for China, which is suffering from many of the same symptoms as Japan in the late 1980s, to take note.

The first truly effective game plan had to wait until Mr. Abe returned as prime minister at the end of 2012. His economic policy, “Abenomics,” sought to stimulate economic activity through fiscal stimulus and the Bank of Japan’s purchases of government bonds.

Although Japan’s predicament was structural and beyond the control of any one leader, Mr. Abe proved that a leader’s personal qualities still matter when it comes to choosing the right solutions.

Bank of Japan

Part of the strategy to save Japan came from the Bank of Japan. In 1999, the Bank of Japan implemented the world’s first zero interest rate policy. Policy interest rates eventually fell below zero, and Governor Haruhiko Kuroda, who was nominated by Mr. Abe to head the Bank of Japan, maintained negative interest rates until the end of his 10-year term.

Although the side effects were considerable, the easing money helped stabilize the yen’s exchange rate and exports. The aim was to break out of deflation and achieve an inflation target of 2%, which would theoretically keep wages rising.

Economists are still debating how much the Bank of Japan has contributed to Japan’s economic turnaround, but inflation has already surpassed the Bank of Japan’s target. In March of this year, Kuroda’s successor, Governor Kazuo Ueda, raised interest rates for the first time in 17 years.

Abe resigned as prime minister in 2020 as his health deteriorated as he struggled to respond to the global coronavirus pandemic. In 2022, he was shot and killed during the House of Councilors election. Two prime ministers have been elected since Mr. Abe retired, but the Liberal Democratic Party remains largely faithful to Mr. Abe’s vision.

Whoever succeeds Prime Minister Fumio Kishida will be expected to continue the main aspects of Abenomics.

Mr. Buffett

Economic analysts are divided over the lasting effects of Abenomics, but one of the reforms he promoted, Japan’s first The Corporate Governance Code appears to have borne fruit. This included measures to increase the evaluation of listed companies’ management teams and boards of directors, and to reduce the transparency of corporate actions.

In terms of a key person, there is another person who must not be forgotten. Warren Buffett is a world-famous investor.

In 2020, before Japan’s stock market began to rise, Buffett focused on Japan’s five largest trading companies, owning 5% of each company.two years later When he increased his holdings, he declared that he was bullish on Japan.

When the Nikkei average hit a new high in February 2024, Buffett’s investments had ballooned to nearly $19 billion (approximately 2.95 trillion yen).Buffett’s longtime aide, Charlie Munger, said in 2023, shortly before his death, that Buffett “made money so easily. It was like God opened a safe and poured money into him.” Stated.

Abenomics came as a surprise to those who expected an opaque Japan. Companies now value their shareholders, sell unproductive businesses, and even delist companies if they cannot increase market capitalization.

The common practice of buying rival companies’ stocks or cross-holding them to fend off hostile takeovers is also being phased out. Activist investors, once shunned by “predatory” funds and the media, are now being hailed as powering boards.

“FOMO”

The increased interest in Japan is being driven by investors’ FOMO, or the fear of missing out.

In Japan The coronavirus, which has forced travel restrictions, has exacerbated myopic views of Japan and distant countries struggling to get their messages across. The Tokyo Olympics, scheduled for 2020, were postponed by a year and held without spectators.

In reality, however, Japan is almost the only developed country to have contained the pandemic without a lockdown. The government only strongly urged people to refrain from going out. Far from seeing a sharp increase in the number of deaths, Japan’s mortality rate was among the lowest among the Organization for Economic Co-operation and Development (OECD) member countries, despite the country’s large elderly population, and social turmoil remained limited.

The economy stagnated, but disaster turned into good fortune. Although Japan has continued to restrict entry from overseas for longer than other countries, this has sparked latent interest in Japan. Foreign tourists returning after entry restrictions were lifted seem to like what they see in Japan. After Mr. Buffett purchased stocks of trading companies, investors became more confident that Japan was a “buy.”

Wage increase was a success

The employment ice age that began in the 1990s is now a thing of the past. In fact, many employers recognize that they must pay high salaries to attract and retain talent.

The situation has completely changed since the last time I worked for a Japanese company. Shortly before the global financial crisis, I worked at a game manufacturer in Osaka. He joined Capcom, but famous companies at the time often offered lower wages than competitors, with the advantage of name recognition and job security.

However, recently, Capcom has been raising wages one after another, which has become a hot topic of conversation.The starting salary for new graduate employees is It was increased by about 30%. Since I left the company in 2010, the company’s stock price has increased nearly 1,500%. Wage increases are working.

In the Lost Era, Japan’s wages remained flat as workers chose job security over wage growth. The recession caused workers to hoard cash instead of spending, causing prices to fall and worsening deflation. The annual spring labor struggle continued to disappoint workers. But this year, large companies implemented the biggest pay hikes in nearly 30 years to keep up with inflation.

Prime Minister Kishida is taking an active role in encouraging companies to raise wages, which lag far behind many Western countries. At a press conference in late March, he said he would “definitely achieve incomes that exceed the rise in prices this year” and “be sure to establish wage increases that exceed the rise in prices from next year onwards.” I made it clear.

labor shortage

But rather than pressure from politicians, Japan’s dire labor shortage may bring about change. As companies scramble to secure human resources, it’s a seller’s market for university graduates. Japan previously focused on underutilized corners of its workforce, such as retirees, but the problem cannot be solved immediately.

Japan actually has one of the highest labor force participation rates in the world.Especially many women The proportion of women who are employed, including low-wage work and part-time work, is higher than in Europe and the United States.

Although there are relatively few women in management positions such as chief executive officers (CEOs) at listed companies, the number of women in management positions is increasing. With few female politicians, Foreign Minister Yoko Kamikawa is seen as a likely candidate to succeed Prime Minister Kishida.

There is also a growing trend towards welcoming foreigners as workers.Already more than 2 million people, although more cautious than in Europe and the US Accepts foreign workers. This number doubled in less than 10 years. The government is expanding the range of jobs for which foreigners can obtain visas and introducing shortcuts to permanent residence.

China

The rise of China has shaken Japan, but it is a result of karma. As the centralization of power in the hands of Chinese Communist Party General Secretary Xi Jinping (and as the mainland economy matures and begins to slow), capital and funds are flowing out of China and Hong Kong.

Real estate prices in Tokyo have revived due to this backflow of investment. Apartments are now higher than the eye-popping valuations of the 1980s, but there are few signs of a bubble.

Demand for Tokyo Homes Spike

Japanese capital’s once-moribund housing market is enjoying a moment

Source: Real Estate Economic Institute

When China’s growth was accelerating, American companies hoped that China would liberalize and pursue the illusion of ever-increasing wealth. Japanese companies made the same mistake long ago. Intellectual property rights were being violated and technology was stolen.

The Japanese government understood much earlier the need to eliminate, if not decouple, the risks associated with China. Japan is a pioneer of the “China + 1” strategy, diversifying its investments from mainland China to countries that compete with China in manufacturing, such as Vietnam and India.

pacifism

The U.S. shift toward a “de-China” policy that began under the former Trump administration and accelerated under the Biden administration has contributed more than anything to Japan’s restoration of its global standing.The Democratic Party of Japan, which was in power from 2009 to 2012, Mr. Abe, a realist, wanted to move closer to China, but instead, Abe, a realist, The alliance was greatly strengthened.

For decades, Japan’s efforts to build up its defense capabilities have been viewed with suspicion at home and abroad, but that is already beginning to change. The postwar “peace constitution” renounced war and theoretically prohibited the possession of an army.

Innovation Shrinks in Japan, Grows in China

China has surpassed both Japan and the US in patent applications

Source: World Bank

Russia, China, and North Korea are Japan’s neighbors, but they are not exactly kind neighbors. Even if Japan wraps its foreign policy in pacifism, it cannot ensure security. This attitude, sometimes referred to as “peace-obsessed,” has kept Japan away from the international arena. Mr. Abe wanted to make Japan take full responsibility for its own defense.

Mr. Abe’s attempts to “break away from the postwar regime” were often falsely criticized as a revival of militarism.During the 15 years under the Abe administration, the right to collective self-defense was made possible. security related laws Established.Tens of thousands of people are trying to stop this They gathered around the Diet and protested.

In 2016, during the Obama administration, when Mr. Xi was invited to the United States as a state guest, Mr. Abe promoted the idea of ​​a “Free and Open Indo-Pacific (FOIP).” Advocate. This is the concept envisioned by Mr. Abe in 2007, and is also the framework for the Japanese government’s current strategy of working with allies that can counter China. This is now the policy of the US State Department.

Successive Japanese administrations have deepened relations with countries such as India and the Philippines that, like Japan, have problems with China. U.S. policymakers now admit that Japan’s approach to China was correct all along.

sharp nails

Before the economic downturn, Japan was energetic and even arrogant. However, after the lost era, Japan became humbler and more inward-looking. Now, that arrogance has been put aside and sharp claws have been extended.

The Japanese government is aware of the need to stand as a leader in regional and global alliances to protect peace in Asia. Still, the new stance comes with risks.Nuclear-armed China claims sovereignty over the Senkaku Islands Despite its claims, China remains Japan’s major trading partner. In 2010, China effectively banned the export of rare earths to Japan.

China is making it easier for the Kishida administration to push for a doubling of defense spending. The Maritime Self-Defense Force’s destroyer “Kaga” Japan is increasing its ability to counterattack by force, including by developing aircraft carriers. A Chinese military newspaper recently expressed concern that Japan is increasing its “obviously aggressive features,” indicating a sense of caution on the Chinese side.

U.S. Ambassador Emanuel to Japan expressed his concern for Japan, which is embarking on a new path. He expressed his utmost support. “Japan has been doing the right thing over and over again at the exact same time that China has been doing the wrong thing,” he told me, adding, “This is a new Japan, and we are all changing our assumptions and analysis. We need to update our expectations.”

semiconductor

During Japan’s economic downturn, many Western journalists feared that the country would lean toward a populist leader, perhaps a politician like the late Tokyo governor Shintaro Ishihara.

Ishihara said the “peaceful” constitution was “imposed” on the United States. He continued to advocate for constitutional amendment. He also said that while populism threatens democracy in the West, Japan’s politics are stable.

Mr. Ishihara had another prediction.In 1989, he joined Japan, then the world’s No. He urged Japan to correctly recognize the importance of the semiconductor industry and solidify its foothold in semiconductor production for the next 10 years.

At the time, the U.S. military was heavily dependent on Japanese technology, and the U.S. government decided it needed to become independent from its economic rivals. In the end, Japan succumbed to American pressure and fell behind in semiconductor production, while foundry businesses in South Korea and Taiwan grew. The decline of Japan’s semiconductor industry coincided almost perfectly with the lost 30 years, a classic story of wasted management resources and misdirected capital.

And Japan is now trying hard to catch up. The world’s number one foundry, Taiwan Semiconductor Manufacturing ( TSMC) and supported the construction of a factory in Kumamoto Prefecture. The company is also devoting all its efforts to the bold and foolhardy attempt to manufacture semiconductors with circuit line widths of 2 nanometers (nm) by 2027.

Through massive investments, it is bringing together the nation’s leading companies to shape the semiconductor supply chain in a way not seen since the 1970s.

soft power

What Japan has learned is how to wield a different kind of power. In the past, Japan was only thinking about dominating the business with hardware like Sony’s Walkman. Now they are achieving greater success with the soft power of pop culture.

Akira Toriyama, the creator of the manga “Dragon Ball,” which began serialization in 1984 and gained popularity when Japan was in an economic slump. When news of his death broke in March of this year, world leaders, Hollywood stars, the Salvadoran government, and AC Milan, the prestigious Italian soccer team in Serie A, expressed their condolences. Thousands of people mourned Toriyama on the streets of Buenos Aires, more than 18,000 kilometers from Tokyo.

People over a certain age may not realize how important animation and manga are today. However, the anime and manga boom that was largely triggered by Dragon Ball is now strongly attracting young people around the world.

South Korea’s K-pop industry is worth $5 billion.However, the Japanese anime market alone is approximately $30 billion, and is expected to more than double in the next 10 years. It is expected. The Pokémon series is often cited as the highest-grossing media franchise of all time, surpassing Marvel and Star Wars.

Indeed, in the lost 30-odd years, Japan’s soft power momentum has waned, as has happened in almost every business.

But now, thanks to the internet and streaming, niche Japanese content can be found in countless homes around the world. It may have been economically tough, but it was culturally rich, as is often the case during recessions.

The pandemic has brought about “stay-at-home” consumption, further activating the market. The game machine industry is now with sony group Nintendo’s Japanese team It has the upper hand, with Microsoft in the US having a weak shadow.

Inbound

If there’s one thing that distinguishes today from the beginning of the lost three decades, it’s tourism. The rapid increase in the number of tourists visiting Japan can be said to be Japan’s greatest economic success story over the past 30 years.

This year, Japan is expected to receive approximately 33 million inbound tourists, seven times as many as 20 years ago, and Japan’s soft power will further spread through these visitors.

Japan Becomes World Tourist Destination

The number of people traveling to Japan has tripled in just a decade

Sources: Japan National Tourism Organization; JTB (2024 estimate)

The lost 30 years were not just an economic recession, but also left deep psychological scars. Japan appeared to be on the verge of a nervous breakdown. In other words, not only Japan’s body but also its soul and pride were injured.

For over 30 years, stereotypical views of Japan continued.Very old-fashioned and never changing, or technologically efficient and futuristic, or Some say they still use faxes because they can’t break free from their past.

With old-fashioned plastic food displays and talk of overwork, Japan is experiencing the familiar sloppiness. Labeled. Images of office workers dressed in similar suits, frustrated housewives, and countries that tolerate sexual harassment are also talked about, and the people have little sense of independence or connection to what is happening in the West. , it was sometimes considered a faded country.

It might be a nice place to visit, but you wouldn’t want to live there, and in any case there was certainly a prejudice that the supposedly xenophobic Japanese people wouldn’t allow it.

In the summer of 2003, I wanted to find out what was plaguing this country. To do that, I needed to look deeper. Even now, many signs of positive change are still hidden.

Japan’s suicide rate is lower than the United States, and the number of homeless people has fallen by 90% since its peak in 2003. The population may be aging rapidly, but the birth rate looks healthy compared to neighboring countries like South Korea and China.

Instead of office workers in suits, cafes often feature online content creators and individual traders trading on laptops.

When I came to Tokyo in 2011, it was rare to see foreigners working at convenience stores or restaurants, but now they are working at 7-Eleven. It’s rare to meet a Japanese store clerk.

Most major cities are crowded with tourists obsessed with Japanese food and culture. Creators who communicate Japanese shareholder value and cultural content are increasingly valued and praised. And the Japanese government has quietly accepted its role as a leader of the democratic West.

social contract

When the Nikkei average hit a new record high this year, there wasn’t much excitement. Japanese people recognize that much of the economic recovery is an urban-centered story that relies on foreign funds.

In fact, we can’t pretend that we’ve escaped a lost era. In the future, inequality could widen in a country that has shunned flashy wealth in exchange for a wide safety net.

Social Problems on the Wane

Suicides and homelessness in Japan have declined from early-2000s peaks

Source: Japan’s Ministry of Health, Labor and Welfare

What will become of the lost 30 years of the “social contract”? Japan has traded dynamism for social stability that is the envy of the world. Even during downturns, we have been able to maintain a high quality of life, including affordable housing, universal health care, cheap and nutritious food, unparalleled infrastructure, and a commitment to law and order. Ta. Is that now under threat?

But that’s why I chose to stay in Japan. This endlessly fascinating society, despite its Western stereotypes of “obscurity,” evolves and transforms, exhibiting perseverance and power that the Japanese themselves often do not fully understand.

The year I came to Tokyo, the rainy season didn’t end until early August, making it the second-latest official start of summer in the capital on record. However, the long and annoying rainy season is finally over. No matter how long or how stagnant the season is, it won’t last forever.

(Reedy Garroud is a Bloomberg Opinion columnist covering Japan, South Korea, and North Korea. She previously led the North Asia Breaking News team and was deputy bureau chief in the Tokyo bureau.In this column: does not necessarily reflect the opinions of the editorial department, Bloomberg LP, or its owners.)

Original title: How a Fading Japan Regained Its Superpowers: Gearoid Reidy (excerpt)