Japan's Two Economies Need to Travel One Path

Reviewed by Hitoshi URABE

Article:
"Japan's Two Economies Need to Travel One Path"
(by James Flanigan) Los Angeles Times
http://www.latimes.com/business/la-fi-flan13jul13.story

Comments:

The author is a familiar figure. As an established and prominent editor and columnist on finance and economy with the Los Angeles Times, he is also well versed in Japan and its economy. His view on Japan's economy has been to perceive it as having two separate facets, global and domestic, and the formula is reiterated in the report introduced above.

The article refers to the recent recovery of stock prices in Japan, bouncing back from the twenty-year low Nikkei average of 7,700 yen in late April to the recent levels of around 10,000 yen. It asks whether this is a sign of recovery out of recession which lasted well over a decade for Japan, to which the author responds with almost a profound 'NO'.

The reason for the pessimistic forecast is based on the fact that the surge of stock prices was caused by the 'global side' of Japanese economy, and that the 'domestic side' of the economy is still very gloomy. The global side of the economy is typified by what people outside Japan would readily recognize, which includes leading globalized companies such as Toyota, Canon, and Nissan. But the domestic side, comprising 85% of GDP, is plagued by bad loans and deflation that is, among other things, corroding Japan's pension system, at a time when people are becoming wary of unemployment.

One brief but a substantial fact the article points out, especially to those who may have no interest in Japan's economy, is that Japanese government now holds an estimated $500 billion in U.S. Treasury notes and bonds, a volume which U.S. would not be able to withstand if Japan dumps it.

It has been pointed out in Japan, too, that Japanese industry could be sorted into two distinctive groups. One is with global competitiveness and the other is comprised of companies that could only survive upon Japan's culture, customs, and regulations. As many corporations which would be filling the gap in between have by now either closed down, or moved their operations out of Japan to countries such as China, the gap between the global and domestic shops seems to be widening.

Strong policy initiative is definitely needed to assist those domestic industries to acquire the power to become viable against global criteria. Destruction of vested interests is also essential, which, incidentally, was what Mr Koizumi was strongly advocating during initial days of his prime ministership.

It is important to recognize also, that at the extreme end of the domestic sector is farming. Farmers form the strongest interest groups in any country including the US and EU, and Japan is no exception. Through utilizing its powerful political clout, farming has remained as the most protected industry, or worse, virtually prohibited just to become an 'industry' in the first place where only individuals could own and cultivate farmland. The pressure to remain still has been augmented by the way the government was structured, where Ministry of Agriculture, Forestry and Fisheries has always been a strong resisting force in liberalizing farming, by allying with farmers and the politicians they represent, to protect their influential powers against other Ministries in the administration.

If Japan were to recover from abyss, it is not just certain categories of industry but every sector of production must increase its productivity. At the tail end of renovation is farming, which accounts for a large share of work force and land use. As such, modernization of the farming sector should prove very effective in bringing back Japan on track.