Japan now faces its fourth recession since 2008. The Japanese economy has contracted in 13 of the last 27 quarters. In effect, there has been no growth for six years. The Japanese economy has been moribund for two decade.
So far Abenomics is not delivering as Prime Minister Abe had hoped. His attempt at money-creation on a vast scale to monetise Japan’s enormous public debt is not working.
Facing failure of his economic policies, Prime Minister Abe has done what many politicians do when they are not sure of their position. He has called an election for next month. He will probably win that election despite the drubbing he received in a bi election a few days ago in Okinawa over US military bases on the island. He will win the December election, not because of any policy success he has had but because of the abject failure of the major opposition party, the Democratic Party of Japan.
Abenomics had three arrows.
The first was printing of money on an enormous scale by the Bank of Japan. It was designed to stimulate the economy, particularly consumption and promote inflation which would help monetise the debt and encourage consumers to spend now rather than wait for prices to fall. But the economy has stalled again and prices are not rising.
The second arrow was budget reform to repair Japan’s enormous government debt. Japan’s gross government debt as a percentage of GDP stands at 238%, the highest in the world. By contrast the Australian figure is 27%, although when we listen to Tony Abbott or Joe Hockey we would think that we face an emergency.
Prime Minister Abe attempted to address the government debt problem by increasing the GST from 5% to 8% in April, but it stopped consumption in its tracks. Prime Minister Abe has now said he will delay the next increase in the GST from 8% to 10% which was scheduled for October 2015. So budget reform has been put on the back burner. The second arrow has also missed its mark.
The third arrow involved structural reform which necessarily takes longer to achieve. This third arrow had several features. It is not having much effect.
- Boosting the role of women in the workforce, but there is no sign yet of any upward trend in participation by women in such a male dominated society.
- Reform of industries including, importantly, agriculture. But farmers are solid supporters of Prime Minister Abe’s Liberal Democratic Party and he is reluctant to upset them.
- Immigration to address Japan’s pending democratic disaster. Japan’s population is currently about 127 million. It is projected to fall to about 100 million by 2050. By then the population will have aged dramatically. For decades Japan has talked about migration, but little is done because Japan is culturally apprehensive about foreigners, ‘gaijin’. There are over 500,000 ethnic Koreans in Japan, the descendants of people who were brought to Japan as workers when Korea was part of the Japanese empire (1910-1945). Those Koreans are still ‘outsiders’ in Japan and presently subject to a hate campaign by right-wing nationalists who are attracted to Prime Minister Abe’s policies in such areas as visits to Yasukuni Shrine, denial on comfort women and the Tianjin massacre. There have been a few Asian women who have migrated to Japan to marry farmers who have found it difficult to find a partner. With a culturally exclusive attitude to all foreigners and with Japanese women reticent about marriage and families, Japan is unlikely to break free of its population decline.
Our ‘best friend in our region’ is in serious trouble.
In July last year, we signed a much hyped Economic Partnership Agreement with Japan which Andrew Robb said would ‘turbo-charge’ our trade with Japan by reducing tariffs and other restrictions on our goods and services into Japan.
But twelve months later it is clear that two factors will slow down the alleged benefits of the EPA. The first is clearly Japan’s sluggish economy which is again in recession.
The second is the depreciation of the Japanese yen which is the direct and intended result of Japanese policy-makers. Since we signed the EPA with Japan in July, the Japanese yen has depreciated over 7% against the Australian dollar, making imports into Japan more expensive. This will reduce the benefits of the tariff reductions that we have negotiated. And Japanese policy-makers are determined to depreciate the Japanese yen even further. The Yen has depreciated 20% in recent months against the US dollar.
By 2050 China will have a population of about 1.4 billion and Indian 1.6 billion compared with Japan of 100 million. A large population does not necessarily result in economic success and influence. But we are seeing amazing growth in China. Watch this space for India.
China and India are likely to be increasingly important to Australia’s economic future. Tony Abbott should be more careful about the language he uses about ‘our best friend in Asia’. By 2050 we may have a very different view about who is most important to us in our region.