Japan Worried Over Fragile Economic Recovery

Banking jitters that won't go away, scandals that never seem to end, an ageing population that could puncture the pension system and an economic recovery that never quite takes off.

Japan's litany of woes has even domestic pundits worrying publicly that the economy may be doomed.

Now, with the 21st century around the corner, the Japanese are gripped by an extreme sense of drift a deep feeling that Japan may have reached a dead end, wrote Kyoto University economics professor Takamitsu Sawa in an article published this week. The nation is suffering a crisis of confidence.

High on the list of likely causes for the well-publicised gloom is a fragile economic recovery whose fate remains in doubt some seven years after the collapse of asset prices which brought the high-growth era of the late 1980s to halt.

Policy-makers argue such worries are overdone. If you look at the individual economic indicators, they are rather strong, one official told Reuters, echoing a recent government refrain. But confidence in the ability of once-revered bureaucrats to solve Japan's policy problems has itself been damaged by a seemingly never-ending series of scandals, while trust in politicians never very high has waned further.

Support for Prime Minister Ryutaro Hashimoto has plummeted to 42 per cent from 55 per cent in December, due largely to voters' anger at wasteful spending planned in next year's budget and scepticism that his Liberal Democratic Party (LDP) can carry out pledged reforms, according to a poll this week.

Longer-term, many middle-aged workers wonder who will foot the bill for their retirement, given forecasts that one in four Japanese will be 65 or over by the year 2015.

Concern that corporations have failed to restructure drastically enough to be competitive in global markets also persists, though some say Japan's stagnant financial sector has been more laggard than many multi-national manufacturers.

Under excessive bureaucratic control and government protection, the competitiveness of Japanese industry has deteriorated steadily and unrecoverable bad loans are continuing to drag down the economy, said a recent editorial. Such comments reflect a growing sense that the tightly woven socio-economic order that brought Japan post-war success is tearing apart and needs to be recrafted. The linkages among politicians, bureaucrats and business, cross-shareholdings and the keiretsu' (long-term business ties) system, the family-style ties between the company and its employees...this state of affairs which supported Japan's post-war development now appears to be approaching its twilight age, said an article in the Nihon Keizai Shimbun financial daily.

Some say the pessimism has gone too far. Media reports always exaggerate. Ten years ago the US media were keen to portray Japan as a threat and now the reporting is too pessimistic on the other side, one senior government official said. But while not everyone believes Japan is doomed to slip behind in the global economic race, many admit that the changes needed to ensure success could exact a heavy social price.

We are a very equitable, homogeneous society and we were happy in that sense. But you can't live your own life without competing in the global market, said one civil servant. You have to give up something, but not necessarily everything.

The challenge for Japan is whether it can balance these two aspects in a Japanese way, he added. How far the balance will have to tip away from values that stress conformity, harmony and relative equality towards individualism, competition and social gaps remains uncertain.

People are talking about deregulation, market forces and individual responsibility, but that kind of theory could mean that the law of the jungle will be applied to every aspect of the economy, the government official said. There is uneasiness about what the impact of those changes might be. Some argue Japanese must change the very way they think.

I think Japanese society has to change, maybe drastically, the civil servant said. The sense of uniformity, the sense of group consciousness has to change. We have to be more individualistic and have a sense of self-responsibility.

Others, like well-known finance ministry senior bureaucrat Eisuke Sakakibara, insist that Japan can carry out needed reforms while clinging to a core of traditional values.

I call the recent recession a masochism recession'. In other words, everything Japanese is bad. Bureaucrats are bad, politicians are bad, Japan is finished. There are a lot of such commentators, but I don't agree, Sakakibara was quoted as saying in a recent interview in the business magazine Zaikai.

With regard to financial and information technology, we must catch up with Europe and the United States, but it is quite possible to remain Japanese while incorporating these, and I think ultimately the Japanese spirit of cooperation and of harmony is very important, he added.