Is the Japanese miracle already a memory of distant past?

Feb 15, 2002 01:00 AM

The Japanese prime minister's recent approval of another massive supplementary budget comes as a strong indication that he is fast drifting towards the camp that he once despised. The supplementary budget is complete with old style fiscal stimulus and more public works. How far it will be helpful in preventing any further slide in the job market remains highly doubtful, as similar earlier attempts only saw an upward swing in jobless rate.
For most of the post World War II period Japan's economic miracle remained a dream topic on which researchers as well as ordinary citizens of countries trying to achieve certain level of economic success eagerly kept on focusing. Many in the developing world earnestly hoped they could at least come a bit closer to something like that, while in the West people were also no less enthusiastic about Japan's success in ensuring job security for most of country's working-age population.

Only a decade ago most Japanese had a job for life with regular pay rises andprobably nobody at that time had even slightest of any idea about how short lived that miracle would prove to be. Japan's downward swing started with the bursting of the so-called bubble economy towards the end of 1980s.
Ever since the country is desperately trying to gather together some of the scattered pieces with the aim of salvaging what has been left intact. But the success seems to be still out of reach and as a result there is already growing concern that the miracle of Japan's economic success might already have turned out to be a matter of past, a careful study of which may provide vital clues for finding faults in an economy that might otherwise seem sound and healthy.

Japan's economic bubble was the result of excess of everything. During the second half of the 1980s Japan experienced the most extreme form of financial mania seen in the twentieth century. The mania was centred on a booming stock and property market.
The solid manufacturing economy that created Japanese miracle was suckedinto the quicksand of speculation as enthusiastic Japanese investors, finance by no less upbeat Japanese banks, were paying unthinkable prices for assets all over the world. Nikkei stock index skyrocketed to a level hitherto unthinkable. And with that arrogance reigned supreme in Tokyo, so much that some Japanese even didn't hesitate to eat gold by mixing the precious metal with certain food items.
The boom has since then gone spectacularly bust leaving in the wake an ever shrinking stock market, falling property value, a mountain of bad loans, a slowing and sickening economy, and series of political and financial scandals. As the economy started its downward swing, the first casualty of the trend was obviously country's job situation. In most of the years between 1960 and 1989 Japan's unemployment rate remained just around 2 %.

With the bursting of country's economic bubble the graph started to show its upward swing and reached 4.1 % in 1998, indicating clearly about the severity of the situation. Figures released towards the end of January by the Japanese government saw unemployment rate for December 2001 hitting 5.6 %, forcing the figure for the year up to 5 %. Both figures are highest since 1953, when Japan started measuring unemployment under the current formula. Jobless ranks swelled by 390,000 people from a year earlier and a total of 3.4 mm Japanese were unemployed in December.
As the world's second biggest economy is trying to cope up with the realities of jobless rate at the threshold of 5 %, there came further bad news that things might turn worse before they show sign of any improvement. The Japanese government predicted a jobless rate of 5.6 % in 2002, but there is a widespread feeling among many private-sector economists that the figure this year might reach even 6 %.

The worsening job market is prompting consumers to tighten their purse strings. In a separate announcement issued on the same day as jobless rate for December was announced, the government said that spending by wage earners in December 2001 fell 4.4 % in real term from a year earlier.
As consumer spending accounts for more than half of Japan's economic output, the effect of such a downswing in that particular field on country's economy is definitely going to be quite significant. As a further blow to the already cornered economy, officials in Tokyo also said that amid the global downturn Japan's industrial output plunged 7.9 % in 2001, marking the biggest fall since the oil crisis of 1973.
Series of such poor data helped push down the Nikkei 225 stock average to a record 18-year low, which is now hovering around 9,500, almost a quarter to the level it reached at the peak of country's overheated economic bubble period. The fall in share price is particularly troubling as it hurts Japan's already troubled banking sector by driving down the value of the huge stock portfolios that banks hold.
The government is playing a difficult balancing act in explaining the unemployment figure, acknowledging that conditions are tough while reminding voters that joblessness is the price Japan is paying for delaying initiatives to mend the troubled economy. Finance Minister Masajuro Shiokawa told recently that as businesses have just started to restructure, he expects the severity in country's employment situation to continue for quite sometime.

Meanwhile, Prime Minister Junichiro Koizumi is coming under increasing attack from the opposition camp, which has accused him of prompting a rush to 'sell Japan' in financial market in his futile attempt to rescue the economy. Opposition politicians questioned Koizumi's ability to carry out structural reforms he promised when he took over the leadership last April.
The prime minister, on the other hand, fuelled further controversy by evoking the words of Emperor Hirohito in a speech, in which he pledged to continue his reform program, amid increasing doubts about his ability to deliver and also to survive in the top job. "I hope the people will be as heroic as those pine trees, standing evergreen despite the drifts of snow," these were the words Koizumi quoted from a poem written by the late emperor.
A group of constitutional scholars immediately criticized the prime minister for quoting the late emperor's poem in the official policy speech delivered. According to such critics, as the constitution doesn't allow the emperor to intervene in politics, quoting his words in policy speech tantamount to a direct violation of the constitution.

No doubt Koizumi's reputation as a reformer is under serious doubt these days. His promises to end old style faction-based politics and putting an end to wasteful public spending have by now turned out to be highly popular tune of music that lost much of its charm as a result of endless repetition. While on the other hand, there is no sign of any change in rules of the game surrounding multi-trillion-yen stimulus packages, wasteful public works and pork-barrel politics.
It is still uncertain whether Koizumi will find the much-needed factional support within the ruling Liberal Democratic Party to remain prime minister amid such gloomy economic scenario. But indications are there that he is trying to win that support from the old guards, who by now have become more powerful with the departure from the cabinet of the popular foreign minister.
The prime minister's recent approval of another massive supplementary budget comes as a strong indication that he is fast drifting towards the camp that he once despised. The supplementary budget is complete with old style fiscal stimulus and more public works.

How far it will be helpful in preventing any further slide in the job market remains highly doubtful, as similar earlier attempts only saw an upward swing in jobless rate. But when survival is at stake, other considerations are bound to take a back track. As a result, for Japan it seems to be a time when expectation of a political miracle is taking an upper hand than that of an economic one.

Source: The Daily Star
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