New book | Yukio Noguchi: The bubble economy collapsed, and the whole of Japan is still in a "hangover"

Huang Zongzhi

【About the Author】

Yukio Noguchi was born in Tokyo in 1940. After graduating from the Faculty of Engineering at the University of Tokyo, he entered the Ministry of Finance. He received his Ph.D. in Economics from Yale University in 1972. He has served as a professor at Hitotsubashi University, the University of Tokyo, Stanford University, and Waseda University, and since September 2017, he has been an advisor to the Business and Finance Research Center at Waseda University. His research interests include financial theory and Japanese economic theory.

Thirty Lost Years: An Economic History of Heisei Japan [Japanese] Yukio Noguchi by Guo Chaomin, translated by China Machine Press, March 2022

【Introduction】

The Heisei period (1989-2019) was a period in which Japan transitioned from a bubble economy to a sluggish economic growth, so it is also known as the Lost Thirty Years. At the end of the Heisei era, all walks of life in Japan began to reminisce about the Heisei era, and Yukio Noguchi, as an economist, presented a special tribute to the farewell of the era.

From bubble collapse to low-desire society; From a manufacturing powerhouse to the collapse of an "export nation"; From the second world economy, to being far behind the times; What happened to Japan?

From the lost twenty years to the lost thirty years, what have been left of Japan by the major historical events such as the subprime mortgage crisis, the Great East Japan Earthquake, and Abenomics? Where should Japan go in the post-Heisei era?

In the early 1990s, the Japanese economy peaked

In the early 1990s, both sales and operating profits of Japanese companies changed dramatically. The Japanese economy underwent a major turnaround during this period.

The first is the stock price, which is known to have been an important year for the change in Japanese stock prices in 1990 (Heisei 2).

On January 3, 1990, the Nihon Keizai Shimbun predicted that "in the context of today's stable and positive economic situation and good stock supply and demand, the average share price of Nikkei will rise to about 40,000 points by the end of 1990." However, the next day, on the first trading day of the new year, Japan's stock price fell across the board. Since then, Japan's stock price has begun to fall continuously.

In addition, land prices have declined since 1991. Therefore, the handling of non-performing debts has become an important issue, and financial institutions have fallen into an operational crisis.

More critically, the sharp turnaround in the entire market did not only occur in the financial and real estate industries, but also in the sales and operating profits of enterprises from 1990.

Statistics from Japanese corporations show that from the second half of the 1960s to the end of the 1980s, sales of all Japanese corporations have been growing at a high rate, reaching 214 trillion yen in 1970, 820 trillion yen in 1980, and 1428 trillion yen in 1990.

However, in 1991, the sales of Japanese subsidiaries suddenly peaked, and the rapid growth stopped suddenly. In 1995, sales of Japanese subsidiaries were 1,485 trillion yen, and in 2000, they were 1,435 trillion yen, which has remained stable. Since then, this figure has not changed much until recent years, with sales of 1456 trillion yen in 2016.

In addition to the sales of enterprises, the profits of enterprises have also shifted from the previous high-speed growth to decline. In 1970, the profits of Japanese companies were 10 trillion yen, in 1980 it was 29 trillion yen, and in 1990 it was 50 trillion yen. However, the profits of Japanese companies peaked in 1990 and then began to decline sharply, falling to 35 trillion yen in 1995 and 59 trillion yen in 2016.

In addition, the index of mineral industrial production also began to decline continuously after peaking in the first half of 1991. Although the index of mining industrial production in 2007 exceeded the peak peak in 1991, it has fallen to levels lower than in 1991 in recent years.

In addition, the previous rapid growth in equipment investment has also changed a lot. From 1984 to 1990 (except 1986 and 1987), Japanese private equipment investment increased by double-digit percentages compared to the previous year, but by 1991, the growth rate turned negative and continued until 1994, and has been a low growth rate since 1995. The same is true for private housing investment.

These data have long been a reminder that the Japanese economy has changed dramatically.

The Japanese people are unaware of the changes in the Japanese economy

However, the Japanese people believe that these changes are only temporary phenomena and remain intoxicated by the bubble economy. At that time, many Japanese people did not have the idea of "it was bad, the Japanese economy collapsed" in their minds, and they felt that the decline in stock prices was only a temporary adjustment. Even as land prices began to fall, many people did not wake up from the drunkenness of the bubble economy.

In 1990 (Heisei 2), speculation in real estate continued. On 2 August, Iraqi forces attacked Kuwait and occupied the capital of Kuwait. At the time, a Japanese commission was investigating speculation in one-bedroom apartments in Hokkaido. Because speculative home purchases centered on Sapporo have increased significantly.

In 1991, the construction of the Hatsujima Club, a large entertainment and leisure resort, began, and it was officially opened in July 1994. It is believed that the bankruptcy of Japan's long-term credit bank has a lot to do with the Hatsushima Club.

A disco in Tokyo called "Tokyo Juliana" shows that the Japanese people at that time were still immersed in the bubble economy. "Tokyo Juliana" has always been said to be a symbol of the bubble economy, so until now many Japanese believe that the heyday of this disco was in the 1980s. But in fact, the ballroom officially opened in May 1991, a year and a half after the first comprehensive decline in Japanese stock prices.

During the period from 1992 to 1993, the dance hall was full of customers on weekends, and it was almost impossible to walk around the store without touching anyone else. It is said that hundreds of people are still lined up and unable to enter. The high platform in the ballroom was demolished in November 1993, not because of the lack of guests, but supposedly because of police interference. "Tokyo Juliana" officially closed in August 1994.

Beginning in the second half of the 1980s, office white-collar women began to adopt a new way of life. Many white-collar women choose to quit after working for a period of time, and then travel abroad with severance pay and unemployment benefits, and then return to China to find a new job after playing for a while. This phenomenon continued until the 1990s.

In fact, after entering the 1990s, many people traveled abroad and returned home, finding it increasingly difficult to find jobs. At that time, many people still felt incredible, thinking how could there be no work.

The bubble in department stores' export business is also continuing

I am not aware that there are problems in the structure of the Japanese economy, in addition to the various types of companies and people mentioned above, there are also manufacturing companies, and it can be said that all japanese companies are like this.

This is evident from the export business of department stores.

It is said that during the bubble economy, the export business of department stores ushered in its heyday. It is widely believed that "at that time, in order to reduce the surplus, companies would allocate some huge expenditures to customers at the middle of the yuan festival, the end of the year, etc." As a result, the sales of the export department of department stores selling clothing and jewelry, furniture and home appliances, and works of art have increased significantly. However, after the collapse of the bubble economy, many companies cut this part of the expenditure first in order to cut spending. As a result, the export business began to deteriorate and entered the cold winter."

But the crux of the matter is figuring out when the bubble economy collapsed. In the department store sector, the bubble collapsed in the second half of the 1990s.

At the time, it is said that the families of the leaders of Japan's large corporations would use corporate funds to buy luxury goods for themselves. But the point is, it's not the 1980s, it's the 1990s. In the 1990s, the operating profits of Japanese companies have been greatly reduced. In the 90s, however, there were still things that happened in the 80s.

According to business statistics released by the Ministry of Economy, Trade and Industry, sales of Japanese department stores increased from 10.5 trillion yen in 1989 to 11.1 trillion yen in 1997. The continuous decline in sales began in the second half of the 1990s. It can be inferred that "for more than five years after the collapse of the bubble economy, 'bubble' corporate consumption continued."

At the same time, China is promoting the process of industrialization, and the global manufacturing industry is facing major structural problems. To cope with this change, Japan urgently needs to fundamentally change its business model.

However, instead of reforming companies, Japan has left a group of people who want to cling to companies. Even if not all of them are like this, there are definitely many people like this.

So, why on earth would this happen? Because people think that the organization will last forever, and it will certainly be able to rely on it no matter what.

The department store industry began to decay markedly and underwent industrial restructuring in 2000, more than a decade after the collapse of the bubble economy.

"Japan is stronger than the United States"

The International Mindset of the Japanese also stayed in the 1980s.

In the early morning of January 17, 1991, the Gulf War broke out with a large-scale airstrike by a multinational force led by the United States against Iraq. Japan was unable to deploy troops due to constitutional constraints, and as compensation, Japan paid a huge amount of money (some say $11.5 billion, others say $13 billion). At that time, the Japanese felt that "although Japan cannot take military action, Japan's economy is strong, so it is only natural to bear this cost to help the United States."

At that time, the Japanese believed that "Japan is stronger than the United States." One thing can clearly reflect this thinking of the Japanese. At a dinner party in January 1992, when then-U.S. President George W. Bush visited Japan, George Bush spat on the knee of Japanese Prime Minister Kiichi Miyazawa, who was sitting next to him, and fell from a chair.

At that time, many Japanese people felt, "The president of the United States fell, and the Japanese prime minister lifted him up." This is the symbol of Japan-U.S. relations, and Japan is stronger than the United States."

However, the whole world has changed dramatically in the 1980s, but these changes were masked by the "bubble" in Japan. After the collapse of the bubble economy, Japan's various problems suddenly became prominent. Even so, many Japanese people were still immersed in the economic bubble of the 1980s, not realizing that Japan already had serious problems. The whole of Japan is in a loose state.

The Heisei era became an era of failure

The recession in Japan was not only due to the collapse of the bubble economy, but also to the factors behind the great changes in the entire world economy. This big change is the industrialization process and THE IT revolution in the emerging countries mentioned in chapter 2. This change began in the 1980s and gradually became apparent during the Heisei period.

This is evident in the comparison of GDP in countries around the world. In 1990, China's GDP was only about 13% of Japan's, and by 2016, it was 2.3 times Japan's GDP. The U.S. GDP was 1.9 times that of Japan in 1990 and 3.8 times that of Japan in 2016.

The per capita GDP of the United States was only 95% of Japan's in 1990, and by 2016 it was 1.48 times that of Japan. Chinese average GDP was 1.2% of Japan's in 1990, which is almost on par with Japan, but by 2016, the average GDP of Chinese was already 20% of Japan's.

Even so, the Japanese did not realize that Japan needed to change its economic structure. Therefore, the Heisei era became an era of failure.

—End—

This article is excerpted from "Thirty Lost Years: The Heisei Japanese Economy."

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