Written by | Liu Qingbin
After the war, Japan quickly moved from a "developing country" to a "developed country." It's an economic narrative about catch-up growth. Understanding today's Japanese economy requires going back to 1990. Japan's economy has been at a standstill since then, and its recovery has been tossed and turned. The economic expectations and consumption desires of the whole society are much worse than before.
Over the past few years, Prime Minister Shinzo Abe, who has now resigned, has launched a series of initiatives that have been summarized as "Abenomics" during his tenure, the most important of which is to increase the competitiveness of Japanese goods in foreign trade through currency depreciation and stimulate private investment. While driving industrial development, "Abenomics" has not alleviated people's long-standing "insecurity" in terms of domestic demand, nor has it successfully stimulated domestic consumption.
Economist Liu Qingbin, who is engaged in economic research in Japan, lets us see that to understand all this, we must look back at how the Japanese economy rose after the war. He also made judgments on the breakthroughs and problems of "Abenomics".
November 7, 2020 Beijing News Book Review Weekly
Exotic and One Heaven: China's View of Japan
b01 edition ~ b08 edition
"Theme" b01 丨 Exotic And The Same Day: China's View of Japan
"Theme" b02丨 Japan's "Quiet": The Imagination of the Past and the Distant
"Theme" b03丨 Is Japanese with a large number of Kanji easy to learn?
"Theme" b04 丨 In Japan, the embarrassment and impulse to cross the line
"Theme" b05丨 The development and problems of catch-up growth
"Theme" b06 丨 "Conformist" and "Craftsman" Spirit
"Theme" b07丨 Are Japanese young people really not thinking of making progress?
"Interview" b08 丨 Yan Fei Thinks like a sociologist about the "suspended era"
"Post-war economy": from growth to stagnation
After the end of World War II, the Japanese mainland was in ruins. Overall, Japan's economic rise has gone through four stages.
The first phase was a period of rapid development between 1950 and 1970.
Japan's economic mainstay has shifted from agriculture and light industry to heavy industry. The steel industry, shipbuilding, machinery industry, automobile manufacturing and electronic equipment industry became the dominant industries in the industrial sector. Gross domestic product (GDP) grew at an average annual rate of 8%, jumping from "developing countries" to "developed countries". In 1968, Japan's economy jumped to the second place in the Western world, after the United States.
The second phase was a period of transition between 1970 and 1985.
The oil crisis that erupted in 1973 plunged Japan's economy into chaos. In 1974, Japan experienced its first post-war negative economic growth, accompanied by severe inflation. During this period, the focus of Japan's manufacturing industry shifted again, and the semiconductor and integrated circuit industries grew rapidly due to relatively high energy efficiency. The second oil crisis of 1979 further promoted a fundamental shift in Japan's industrial structure from emphasizing heavy industry to developing high-tech industries. By the end of the 1970s, computers, semiconductors, and other technology- and information-intensive industries had entered a phase of rapid development. During the period of rapid economic growth in the 1970s and 1980s, export trade always played an important role in Japan's economic growth. However, the growing trade surplus has intensified trade frictions, and calls for Japan to further open up its domestic market and pay more attention to expanding domestic demand to stimulate economic growth are getting louder and louder. Due to two oil crises and trade frictions, Japan was unable to maintain its original high-speed development model, and its economic growth was only about 4% per year, far lower than 9% in the early 1960s. Japan's period of rapid economic growth came to an end.
The third phase was the bubble period between 1985 and 2000.
As Japan's trade frictions with other countries, especially the United States, increased year by year, it was forced to sign the Plaza Accord on September 22, 1985. The yen appreciated rapidly. Increasing trade frictions and a sharp appreciation of the yen have driven more and more export companies to switch to overseas production on the one hand; on the other hand, the Japanese government has taken expansionary fiscal measures and continuously lowered interest rates to increase domestic demand. Quantitative easing has generated excess circulating funds, and speculation has emerged in Japan, especially in the stock exchange market and land exchange market. In just a few years, Tokyo's Nikkei has risen 180 percent, and real estate prices have skyrocketed. At that time, the sum of the land prices in Tokyo's 23 wards reached the level where they could buy all of the United States; and the rise in land prices increased the landowner's book property. The profits the Japanese made from land transactions were used to buy stocks, bonds, overseas real estate, as well as expensive art, luxury goods, and so on.
In March 1990, the Banking Bureau of the Ministry of Finance of Japan began the policy of "total volume regulation", the "bubble economy" burst, and the Japanese economy entered a long period of deleveraging. A large number of book assets have been wiped out in just one or two years, and consumption has shrunk. As land prices have also plummeted, land-backed loans are also extremely risky. At that time, the non-performing loans of Japan's major banks were exposed, which caused a serious blow to Japanese finance. Throughout the 1990s, the Japanese economy was plagued by the after-effects of the bubble economy, so it was called the lost decade.
At the same time, the proportion of manufactured goods in Japan's imports has been rising, exceeding 50% in 1990 and more than 60% in the late 1990s, and Japan's domestic industry has shown a hollowing out trend. Subsequently, although the Japanese government took a number of measures, including debt rollover, increased investment in public affairs, tax cuts, and continuous reduction of interest rates, the effect was not obvious, except for a brief recovery at the end of 1999 and 2000, the Japanese economy as a whole is still underpowered.
The fourth phase is the period of economic recovery from 2001 to the present.
In early 2002, the Japanese economy bottomed out and entered a period of slow but steady recovery that lasted until 2005. After more than a decade of wandering, the negative effects of the collapse of the "bubble economy" finally seem to have been largely eliminated. Interest rates on non-performing loans at major banks fell from more than 8 per cent in 2002 to less than 2 per cent in 2006. The lending capacity of banks has been restored.
In September 2006, Shinzo Abe was elected Prime Minister of Japan, resigning in September of the following year, and on September 26, 2012, he was re-elected president of the Liberal Democratic Party and re-elected for three consecutive terms. After the second cabinet, Abe introduced "Abenomics".
Qingbin Liu is the Director of the Beijing Center of Yokohama National University, whose main research area is economics.
"Abenomics": From Content to Results
The series of policies proposed by Abe during his second term in office in 2012 are essentially quantitative easing. In other words, it is an attempt to increase the international competitiveness of Japanese goods by devaluing the currency.
The main policies of "Abenomics" are called the "three arrows" by Abe, namely, active financial policy, flexible fiscal policy, and the promotion and development of private investment. Specific policies include: 2% inflation target; change the status quo of the high yen exchange rate and implement the yen depreciation; raise the consumption tax; unlimited quantitative easing measures; buy public utility government bonds through the open market operation of the Bank of Japan and hold them for a long time; negative bank discount rates; revise the Bank of Japan Law; stimulate the regeneration of local small economic circles; and large-scale public investment and strengthen women's reemployment.
In order to promote this economic policy, Abe established the Japan Economic Regeneration Headquarters under The Cabinet Office Special Minister Gan Liming, and under the Ministry, the Economic and Financial Consulting Conference and the Industrial Competitiveness Conference were established. Kuroda Higashihiko, who favored inflation to 2 percent, replaced Kataaki Shirakawa as president of the Bank of Japan.
By February 2013, Abenomics policies had led to a sharp depreciation of the yen, and the Topix index had risen by 22 percent. Japan's unemployment rate also fell from 4.0 percent in the fourth quarter of 2012 to 3.7 percent in the first quarter of 2013. The yen fell by about 25% against the dollar compared to the same period in 2012. The yen depreciated even more in the second quarter of 2013 and monetary policy was highly accommodative.
"Economic History of Post-War Japan", by Yukio Noguchi, translated by Zhang Ling, Houlang 丨 Democracy and Construction Publishing House, April 2018
On June 30, 2014, Abe published an article saying that it would be impossible to achieve a sound fiscal climate without economic development, and that structural reforms to the Japanese economy were being considered. These include lowering the corporate tax by 2.4 percent in 2014 and 20 percent within a few years; deregulation to open up Japan's energy, agriculture, medical, and other industries to foreign investment; and allowing women with jobs and children to hire foreign workers to share household chores. Abe believes that "economic growth is the highest priority for the Abe government" and is determined to get rid of deflation, develop local economies, and cope with population decline.
The upturn in the economy has indeed laid a certain foundation for the Abe government to raise the domestic consumption tax to alleviate the debt problem.
In 1989, Japan first introduced the consumption tax rate, the initial tax rate was 3%, which triggered a strong backlash from the people. In 1997, the Hashimoto Ryutaro government raised the consumption tax from 3% to 5%. Because it was the peak period for dealing with non-performing debts after the bursting of the Japanese bubble economy, the tax increase immediately led to the collapse of many financial institutions, and it was even considered to be an important reason for the Japanese economy's long-term inability to recover after the bursting of the bubble. Therefore, although the country's fiscal problems are becoming more and more serious, and it is imperative to raise the consumption tax, Japanese politicians do not dare to push forward easily.
However, the consumption tax was raised twice during Abe's administration: from 5% to 8% in 2014 and again to 10% in 2019. The previous increase saw Japan's GDP growth rate fall by 0.4 percent compared to the previous year; the impact of the second increase is likely to be felt after the Tokyo Olympics.
On the other hand, however, the depreciation of the yen has led to an increase in the price of imported goods and an increase in the consumption tax, which has raised the cost of living for the Japanese people, which has a severe negative impact on the economy.
At present, an important reason why Japan's current account remains surplus is that there is a large amount of investment income from overseas. According to balance of payments data released by the Ministry of Finance, Japan's current account surplus in fiscal 2018 (as of the end of March 2019) was about 19.41 trillion yen (1 US dollar is about 111 yen), down 12.4% from fiscal 2017 and the first decline since fiscal 2013. An important reason is that the trade surplus has dropped sharply by 84.4% to only 706.8 billion yen. However, japan's overseas investment income continued to grow in fiscal 2018 during the same period, with overseas investment income including interest and dividends reaching 21.06 trillion yen, an increase of 3.9% over the previous fiscal year.
We can see that the three East Asian countries in China, Japan and the ROK are facing many similar problems in the process of development, such as the excessive concentration of population and resources in a few regions, and the serious aging and low birthrate.
Since the early 1970s, Japan has entered an aging society. In 2019, 28.4% of the population was over the age of 65, the highest proportion in the world. The phenomenon that accompanies aging is the low birthrate. Japan had 864,000 new births in 2019, the first time since recorded 1899 that it fell below 900,000. Japan's industrial upgrading and international trade frictions have led to some industries having to move to other countries and regions, while aging and low birthrate have led to a serious shortage of labor in Japan, and enterprises have been forced to go out of Japan for industrial transfer.
Due to the earlier development of Japan, many problems were exposed earlier and more seriously, and in fact, experiences and lessons have been formed.
Editors| Luo Dong and Li Yongbo
Proofreading | Zhai Yongjun