By Maidhc Ó Cathail. Published in Kansai Time Out, February 2009.
2008 was the worst year for the Japanese economy for a long time. Exports were down 27 percent from the previous year, and the country experienced its largest trade deficit in nearly three decades. Industrial production fell by 8.1 percent from October to November last year, the greatest ever monthly drop since such data was first recorded in 1953. Unemployment increased by 100,000 to 3.9 percent, a figure which is deceptively low since it doesn’t include those who have already given up looking for work. Will 2009 be any better? Or might it be even worse?
“We are all in trouble without an American recovery,” Toyota’s Honorary Chairman, Shoichiro Toyoda, told reporters at the Japan auto executives annual New Year’s party. Japan’s auto industry has been particularly badly hit by the downturn in the U.S. economy. Car sales in the U.S. have fallen from a high of 17 million in 2000 to 11 million last year. To make matters worse, domestic sales in Japan were the lowest for 34 years. All this has had a serious impact on the profits of Japanese car manufacturers. Nissan, for example, experienced a 67 percent drop in profit in 2008 from the previous year.
In addition to the slump in the U.S. market, Japanese exporters have been suffering from the sharp rise in the yen against other major currencies. As Kosuke Takahashi, writing in Asia Times (December 18, 2008) explains:
“Should the Japanese currency rise by just 1 yen against the dollar and the euro, Sony Corp would lose 4 billion yen and 7.5 billion yen, respectively. Toyota Motor Corp has also said if the yen appreciates a similar amount, it would lose 40 billion yen to 60 billion yen on an annual basis, respectively.”
Nevertheless, the Japanese government seems unlikely to intervene in the currency market. According to Takahashi, “Japan’s concern to maintain relations with the United States, its closest ally, on an even keel means Tokyo will seek to allow its currency to continue its steady appreciation, despite the profit erosion this causes in the key exporting sector.”
So, basically, what Takahashi seems to be saying is that Japanese leaders will bow to pressure from its “closest ally” and put the interests of American manufacturers ahead of its own. With allies like that, who needs enemies?
The auto executives were hopeful, however, that the American market would soon return to normal. According to Nissan Chief Operating Officer Toshiyuki Shiga: “The recovery will get moving once financing problems settle down and American individual consumer sentiments start looking up.”
But how likely is an American recovery in the short term? Are Japanese manufacturers being realistic in their hopes that the U.S. market will pick up again later this year?
End of an era
Writing in Japan Focus, R. Taggart Murphy, a former investment banker and Professor in the MBA Program in International Business at the University of Tsukuba, thinks not. “The days of export-led growth for Asia are over,” argues Murphy in his excellent article “Asia and the Meltdown of American Finance.”
“The era of American ‘deficits without tears,’ in the famous phrase of the French economist Jacques Rueff, has ended with the Panic of 2008,” writes Murphy.
“The United States,” he explains, “cannot recover from the mess it is in without more savings – another way of saying less consumption. That in turn means the U.S. after 40 years of profligacy will have to export more than it imports.
“For this to happen, much of the production capacity that has been steadily transferred to Asia over the last fifty years will have to be repatriated back to the United States so that Americans will have enough factories again in which to go to work to pay off the debts that their politicians and bankers so recklessly ran up.
“Otherwise, all those dollars Asia holds will quickly be worth very little. What, after all, is a dollar other than a claim on the output of an American? The Americans will have to have the means to create that output if the dollar is to have value.”
The big question is, however, as Murphy puts it: “How is Asia going to wean itself from its dependence on the U.S. market?”
But before even beginning to answer that question, there needs to be an awareness among Japan’s decision makers that they may soon have to radically alter the model of export-led growth that they have pursued throughout the postwar period.
“Japan’s economy has never weaned itself off of the overbearing reliance on exports, and especially to the U.S.,” as one economist told Bloomberg’s Toru Fujioka. “Japan did nothing to prepare itself” for the loss of demand from abroad, he said.
The initial reponses from Tokyo to the current crisis certainly show no indication that Japan is prepared for fundamental changes.
If Japan is to weather the coming economic storm, it will surely need better ideas than Prime Minister Taro Aso’s proposed 2 trillion yen cash handout, in which each person living in Japan will receive 12,000 yen, in a purported effort to stimulate the economy. DPJ Secretary General Yukio Hatoyama rightly called it the “ultimate stupid policy.” (Still, it’s not as stupid – although criminal might be a more appropriate term – as U.S. Treasury Secretary Henry Paulson’s $700 billion handout of American taxpayers’ money to his Wall Street banking buddies to compensate them for their gambling losses.)
Fortunately, there are wiser heads than Aso’s in the country. For example, Japan Business Federation (Nippon Keidanren) Chairman Fujio Mitarai has suggested job sharing as a possible solution to the worsening employment situation. He also advocates the creation of a much needed safety net for those who will lose their jobs as companies cut production due to reduced demand. “To solve the current labor problems, the corporate sector should create a safety net together with the government and take every step to expand employment,” Mitarai said.
Although Mitarai expects 2009 to be extremely harsh, he too is optimistic about the long term prospects for economic growth. But is his optimism justified?
The Collapse of ’09
Having lost confidence in the mainstream “experts” who failed to foresee the financial turmoil of 2008, more and more people are now paying attention to financial analysts previously dismissed as doomsayers.
And people like Peter Schiff, Marc Weber, William Engdahl, Max Keiser, Gerald Celente and Jim Rogers are all predicting the imminent collapse of the U.S. dollar, so perhaps Japanese manufacturers had better not put too much faith in the American market.
Rogers is so concerned with the prospects for the U.S. economy that he has moved from the States to Singapore with his family. He wants his two young daughters to grow up speaking Mandarin, because he believes that the 21st century will be dominated by China. Perhaps, policy makers in Tokyo need to soon make a similar move in switching their allegiance from Washington to Beijing.
Gerald Celente, the founder and director of the Trends Research Institute, is even less sanguine about the economic future. Celente, widely respected by businesses around the world for his great track record at forecasting future trends, was not not at all surprised by the calamitous events on Wall Street last year. He had already acquired the internet domain name Panicof08.com in November 2007. Those who remain optimistic about a recovery this year might be concerned that he has already secured the domain Collapseof09.com. As if that wasn’t bad enough, Celente believes that “The Collapse of ’09” will be followed by what he calls “The Greatest Depression.”
“One lesson the world may finally learn from this crisis is that genuine, long-term prosperity comes not from continuously shoveling money at distant foreigners so they can keep buying your stuff,” writes R. Taggart Murphy.
“And certainly not from games playing and speculation by would-be plutocrats. But rather from a large, economically secure middle class – a middle class with the means to purchase the output of a nation’s factories, farms, and service providers.”
But how long will it take Japan’s leaders to learn that lesson? While you’re waiting, be prepared for a very bumpy ride.
