By Kartik Ganotra

The Japanese are known to be one of the most hardworking communities on the entire planet. True to their culture, the Japanese work ethics consist of three virtues: Pride, Respect and Honour.  Pride and Honour, for the work that they perform and Respect, for their superiors. These virtues have led to the longstanding belief that the Japanese are the most efficient as far as workplace performances go, and the country’s remarkable economic progress is a testament to the statement.

As per nominal GDP, the nation is currently ranked the world’s second largest developed economy. It has come a long way for a landlocked nation with poor natural resources, relying on its manufacturing and electronics sector to thrust it forward.

At a point in history, Japan was considered a serious contender to the United States’ title of world’s largest economy. But then, the 1990’s happened.

The Lost Decade of Japan

The 1990’s are considered the “Lost Decade” of Japanese history. The decade saw the bursting of the Japanese Asset Price bubble. The immediate effects were on the Japanese housing sector and the Japanese stock market, both of which tanked. This led to the nation’s single largest period of economic stagnation since 1945. Wages fell, the price level became stagnant, and deflation started taking center stage. The Japanese growth spiralled downward. The going got tougher and the Japanese economy has never been able to recover completely. The nation has witnessed a successive fall in its GDP growth rate. It has been falling by nearly 1.4 per cent in the fourth quarter of 2015.

Fast Forwarding to the Present

Today, the Japanese economy is known for its attempt to curb economic stagnation. They do so by implementing negative interest rates.

Recently Haruhiko Kuroda, the Japanese Reserve Bank Governor, admitted that the negative interest rates alone would not be enough to save the Japanese economy.

Introducing a new set of monetary measures to combat deflation, Kuroda announced that he was willing to take “whatever steps are necessary” to push the Japanese economy back into growth and away from the claws of deflation.

This statement is a chilling reminder of 2012, when Mario Draghi, the European Central Bank head, declared that he was “ready to do whatever it takes” to maintain the integrity of Eurozone’s Monetary Union. And the world is a witness to the Eurozone’s economic predicament.

Can Abenomics deliver in this headwind? | Photo Courtesy: Reuters

Can Abenomics deliver in this headwind? | Photo Courtesy: Reuters

Experts are predicting the end of Japan. Media reports are repeatedly pointing out the inadequacy of these measures. Moreover, the BoJ’s current monetary policy is merely an attempt to save a sinking boat. Is it, therefore, safe to assume, that this is the end of the Japanese economy? Or that Abenomics, the name given to the economic policies advocated by the Japanese Prime Minister Shinzo Abe, have failed? Is it too early to write Japan off completely? Could a Japanese Miracle 2.0 be in the making?

Light at the End of the Tunnel

Located in the Pacific Ring of Fire, the region is prone to high seismic activity with frequent earthquakes. This is a great geographical disadvantage that hinders growth. A few years ago, Japan faced one of the world’s greatest natural disasters and the worst in Japanese history. On 11th March 2011, the Tōhoku Earthquake and Tsunami (9.0 on the Richter scale) struck Northeastern Japan. It triggered a monstrous tsunami which claimed nearly 15000 lives. However, the Japanese quick response in such a natural calamity received worldwide praise. The world raved about the Government’s rescue efforts and structural measures in the preparedness for such events.

This confirms to the Japanese virtues and proves that will and determination can work wonders. The going may be tough but with the right structural policies in place, the Japanese economy can recover and witness a turnaround. Back then, Japanese growth was a “miraculous” phenomenon which other countries often emulated.

What The Future Holds

There may be a dim hope for the future, but time is surely running out. Abe cannot continue to rely on aggressive monetary easing, something which Japan has been accustomed to since 2013. The inflation target, previously set by the BoJ at 2 per cent, is farther than ever. The upward GDP growth rate 0.7 percent may be a positive indicator, but it is accompanied with zero productivity growth.  Room for further monetary experimentation is running out. Furthermore, structural reforms seem like the only way to get out of the situation and kick start growth.

Shinzo Abe recently stated that “robots, sensors, and AI” are key to solving issues in Japan.

However, these do not sound like structural measures which the nation needs. Japan needs to act immediately and put together robust economic solutions to act against the turbulent times. Else it may well be sayonara to the dream of a “Japanese Miracle 2.0.”


Featured Image Source: Pixabay

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Posted by The Indian Economist