Media Writes Japan Off

John de Boer (GLOCOM Platform)

Last week, news sources across the globe spread pessimism about the state of Japan's economy. While negative publicity is not unique for a Japanese economy that has stagnated over the past 12 years, recent reports demonstrate a total lack of confidence in the Koizumi administration's ability to revive Japan. In fact, according to articles featuring the Prime Minister's annual diet speech, Junichiro Koizumi admitted that his reform efforts have thus far failed to produce results. Nevertheless, he refrained from proposing alternatives (Kenji Hall, AP, 30 January). Without delay, the media portrayed Koizumi as a lion gone "docile" (Asahi, 1 February) and Japan as a country with "no tomorrow" (Yuri Kageyama, AP, 31 January).

There is a general consensus in the media and among experts that there is no "quick fix" for Japan's problems. However, many take things much further. On 30 January, Bloomberg reported that Japan's public debt was set to rise to 45.5 trillion yen. The news agency argued that this coupled with deflation spelled disaster. With unemployment at a record 5.5% for the third time and the non-performing loan issue left practically untouched news sources are writing Japan off.

Although Prime Minister Koizumi declared in his speech that he would double foreign direct investment in Japan by 2005, most do not think this is possible. Bloomberg quoted an analyst from Merrill Lynch saying that, "investors and traders assume the government (Japanese) is incapable of stemming deflation" (30 January). The Economist featured a special article on Japan entitled "Sayonara", where it boldly cited a Nikko Salmon Smith Barney strategist who questioned, "why would anyone invest in Japan when next door China is so much more inviting?" (30 January). In another article published on the same day, Charles Scanlon of the BBC reflected this position stating that, "the second largest economy on the planet (Japan) is apparently doomed to permanent stagnation" (BBC, 30 January).

Beyond economic data, these news sources base their arguments on the belief that the Japanese government is incapable of resolving its malaise. Scanlon wrote that "Japan's efforts to revitalize the economy are taken less and less seriously" (BBC, 30 January). This coupled with the view that Koizumi has "cozied" (Asahi, 1 February) up to Liberal Democratic Party (LDP) anti-reformers and watered down his commitment to "painful reforms" in order to win the LDP leadership election has most news sources convinced that things will only get worse.

The Economist goes as far as to challenge Japan's status as a major financial power by stating that, "the departure of several foreign brokers and a cooling off by local retail investors call into question Tokyo's status as a top financial center". Charles Scanlon argues that recovery in Japan is impossible "without an external shock". Even Heizo Takenaka, Japan's top financial regulator, admits to the Associated Press that "Japan has no tomorrow" if it does not engage in reform (Yuri Kageyama, 31 January).

Japan's problems, according to these sources, not only have to do with deflation, public debt, non-performing loans but also a lack of transparency in financial regulation. They argue that investors shy away from Japan because of the sudden changes in regulation, the government's habit of propping up the market and its muddling in policies in general. There seems to be a total lack of trust in the government ability and willingness to implement corrective measures.

A survey of last week's media indicates that many influential publications have written Japan off. As far as they are concerned its goodbye Japan. While this author believes this verdict comes far to early and ignores the fundamentals of the Japan's economy, negative publicity as a result of inaction is no doubt taking a toll on the willingness of foreigners to invest in Japan. If this situation is allowed to continue much longer, reason will surely rest with pessimism, and these opinions proven right.

Articles:

• "Japan jobless back to record high", CNN, 31 January 2003
• "Japan's jobless rate hits record high", The Associated Press, 31 January 2003
• "Public debt set to rise in Japan", Bloomberg Press, 30 January 2003
• "Sayonara", The Economist, 30 January 2003
• Kenji Hall, "Japan's Koizumi: Reforms need more time", The Associated Press, 30