The Future of Japan's Economy Uncertain

John de Boer (University of Tokyo)

On April 1, the survey of business confidence, otherwise known as the Tankan, was published. Results showed no overall improvement with business confidence remaining at a minus 38 from a survey of 8,500 companies. International reaction to this result was mixed with some papers taking a more pessimistic analysis and others rather optimistic. There was consensus, however, on the notion that Japanese economic woes may be approaching their bottom. Nevertheless, judging from more than a few media articles this analysis seems skeptical at best and more accurately described, the situation is one where everybody is crossing their fingers in the hope that the economy's downward trajectory will end soon.

A survey of the international media often leads to the curious conclusion that nobody is in agreement about where the Japanese economy is headed. On April 1 David Pilling of the Financial Times reported that Japanese business sentiment remained flat and warned that Japan was "in danger of becoming a two-speed economy". He went on to describe that any cyclical upturn was likely to be shallow and short lived because most companies apart from the big manufacturers said they were more pessimistic about the future than they were three months ago. According to Pilling, small companies were being left out in the cold while large companies profited. The problem with this scenario was that the success of large companies such as Toyota had little to do with overall prospects in Japan.

To the contrary, David Ibison also of the Financial Times claimed that Japan was on the verge of recovery precisely because large manufactures were doing well. Ibison placed emphasis on the electric machinery and motor vehicle sectors because investment banks such as the CSFB claimed that they held "the key to recovery". CNN was equally optimistic with headlines that read, "Japan showing signs of recovery". It also pointed to the manufacturing sector and reported that the worst was likely over citing an HSBC statement that said, "we believe that the Japanese economy is now closer to the bottom and any further decline would be limited".

Ken Belson of the New York Times was more measured however, reporting that Japanese business confidence remained steady, a steady minus 38. While he highlighted a possible recovery within the next three months, he reminded his readers that Japan's growth would be stunted by its weak banks and indicated that Japanese companies had more restructuring to do as they still had "too many workers and too many factories".

Perhaps the most pessimistic analysis of all came from the Singapore Straits Times (SST). Reporting that Japanese business confidence failed to pick up it emphasized that pessimists in Japan outnumbered optimists by ten to one. The article warned that this signaled that the world's second largest economy "may not emerge from 17 months of recession as soon as hoped". William Pesek Jr. of Bloomberg continued on a pessimistic note describing Japan as the Latin America of Asia. His views were that while Japan used to be Asia's superpower, an economic engine and a geopolitical anchor, after eleven years of recession and paralysis it was now a second string economy.

Worrisome is the fact that the relegating of Japan to a second-tier status seems to be a common theme running through all SST articles. Reporter Han Boon Lai called Japan the 10% nation on the basis that it was one-tenth the size of China, one-tenth its economy and one-tenth its influence. According to him and many of his colleagues, Japan must prepare to be a "peripheral country".

The sentiment that one comes away with after such a survey of the international media is uncertainty and this is probably the most appropriate word to describe how many Japanese feel about their economy today. The only thing that could possibly diminish this sentiment is if Japan's leadership was to define a clear path out of this misery. Unfortunately, Japanese leaders seems to be lost, confused and without direction, leaving one with no option but to conclude that the future of Japan's economy remains a question.