AMU Homeland Security Opinion

Japan’s Growth Disappoints

By Brett Daniel Shehadey
Special Contributor for In Homeland Security

The Japan Center for Economic Research polled 41 economists who predicted a 2013 final quarter growth of 3 percent. The actual number was only one percent. Japan grew only one percent in the last quarter of 2013. This is potentially a fundamental problem for regional economic stability as well. Japan may not be the capable regional leader once thought and supported.

Japan has the power to inflate expectations through a sophisticated international marketing campaign. And this is another problem not only for Japanese economic policy promotion but for their political marketing as well. This is the ability to raise foreign expectations beyond a realistic or achievable end.

“Japan is back.” Many people were sold on Japan’s Parliamentary slogan and fiscal tinkering. Many still are. Others are not so sure.

After all the hype and massive reforms of what was nicknamed “Abenomics,” after Japanese Prime minister Shinzo Abe, Japan’s growth stalls again, in two years of reforms.

Prime Minister Abe has been dubbed “salesman-in-chief” by some, for his efforts to promote his economic policies. The problem is not that Abenomics did not work at all- it appeared to work as magic according to promise and prediction- but for how much longer? The seams are starting show. Some will argue that it was not enough. That will likely be the government’s damage control position and their supporters as well. The critics will cite poor foundations and false premises in economic theory.

The system of Abenomics included monetary and fiscal policy adjustments. The effect devalued the currency to increase exports and international investment. Stocks rose 50 percent last year but the currency manipulation provoked regional currency war tensions. The Yen has fallen more than 20 percent against the US dollar since 2012. Imports rose and trade stagnated.

Is Abenomics a hurdle or a failure? This is yet to be determined.

The third largest economy is apparently “still” on the decline having never fully recovered from its 1980s and 1990s growth wins. Japan’s enormous debt is at around $10 trillion dollars which is twice the size of its economy.

With all of Japan’s nuclear reactors offline, its national energy bill and foreign energy imports are hitting critical- with three consecutive year trade deficits reaching record highs.

Unions are demanding wage increases after Japan’s wages stopped falling for the first time since 2010 and have remained low for decades.

A consumption tax hike is scheduled for April 1.

If monetary policy and stimuli cannot resolve the problem time after time, then there is likely something larger that stands in the way of Japan’s growth. Japan’s way of doing things is often what gets them into the most trouble. Business is not war, honor or stratagem. For some states close by, business is a survival mentality whose people make no money have few or no unions to accelerate their wages or governments able to offer them social entitlements.

The strongest criticism has been that the Japanese cannot realistically compete with low-wage neighboring nations. Lowering their currency will not necessarily allow them to become the export-driven state with high growth that they envision. The recommendation is that they should transition their economy on high cost manufactured goods and advanced technologies and services.

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