A Reviving Japan?
I recently visited Japan and met with Prime Minister Noda, Foreign Minister Genba, and several Diet members, as well as business people and members of the press. The good news is that I came away encouraged. During my last visit, a year ago, I came away worried that Japan was turning inward and might not face up to the problems of slow growth. Now that may be changing.
The tragedy of the Tohoku earthquake and tsunami in March may have provided a stimulus for change. Many Americans admired the dignity and calmness with which the Japanese public dealt with the tragedy, and that increased Japan’s attractiveness or soft power. But there was worry about the economic effects. Now the latest figures show that Japan’s economy grew 1.5% in the third quarter, (an annualized rate of 6%.) This represents the first expansion of the economy in four quarters.
Japan still faces serious economic problems. Its public debt is twice the size of its economy, but Japan is not Greece or Italy. Almost all of that debt is owned by Japanese rather than foreign holders, and major Japanese banks have shed their non-performing loans and have high capital adequacy ratios. If anything, Japan’s problem is that it has become a safe haven that attracts foreign capital, thus pushing up the value of the yen and making Japanese exports more expensive.
On fiscal policy, the Noda government has been wise to combine the short term stimulus of major spending on post-tsunami reconstruction with a longer term plan for doubling the current five per cent consumption tax later in the decade as a way to tackle the debt overhang.
Energy will be a problem following the meltdown at the Fukushima nuclear plants. Japan depended on nuclear for ten percent of primary energy needs (and a quarter of its electricity). Now public opinion makes it difficult to reopen temporarily closed plants, and virtually impossible to site new plants. The government has taken nuclear regulation away from METI, which promoted as well as regulated nuclear power, and created a new Atomic Safety Agency.
Nonetheless, Japan will have to turn to more expensive fossil fuels and renewable energy. Japan will import more liquefied natural gas, but the price of gas in Japan is more than three times as high as in the United States (which has benefited from major discoveries of shale gas.)
Most important, perhaps, were the expressions of political confidence in the new government of Prime Minister Noda that I encountered when I asked. This is quite a change from the expressions I encountered a year ago when I asked about his predecessor.
Now Noda has announced the bold step of joining the new Trans-Pacific Partnership trade talks that President Obama highlighted at the recent APEC meeting in Honolulu. This will raise difficult issues in domestic politics, particularly for Japanese agricultural interests, but if he pulls it off, it suggests a refreshing outward orientation for a reviving Japan.