Abenomics seen from Tokyo

Last week, I explained how Japanese Prime Minister Shinzo Abe’s strategy for revitalizing the Japanese economy looks from Hawaii. Having in the meantime arrived in Japan, let me show you how it appears on Tokyo.

Not surprisingly, the picture from here is quite different. For starters, it is much more positive. The just released numbers for the last reporting period show GDP growth on an annual basis of about 3 percent. Mind you, this is only for one period and could easily change in the next month or two. But for people starved for good news like the Japanese, this is extremely gratifying. To add to the encouragement, the Nikkei stock market average is up, expectations of inflation (devoutly to be hoped for in deflationary Japan) are up, and exports are up while the currency, after months of rising, is up. So at a quick glance it appears as if Abenomics is working and the real question is "what’s not to like?"

Let me say up front that I’ve never been a big fan of Abe’s. Yet, I have to admit that he seems to be sincerely trying to turn Japan around and that much of what he has done represents at least some good first steps. The media, of course, has picked up on his administration’s efforts to reduce interest rates and provide more stimulus and higher inflationary expectations through quantitative easing by the Bank of Japan. They have also noted and encouraged the rise in inflationary expectations, and, of course, the growth of both GDP and exports. But what has not been so reported upon that is unusually encouraging are some of Abe’s efforts to deal with politically difficult structural problems. In joining the negotiations for a Trans Pacific Partnership free trade agreement, he is going directly against Japan’s farmers and agricultural interests who have always been a main stay of his political party. He also recently announced a program for doubling the number of Japanese students studying abroad and for improving the teaching of English in Japanese schools, going against the entrenched interests of the Teachers’ Union in this case. 

Nevertheless,  although Abe and his Liberal Democratic Party (LDP — which according to some expert observers is neither liberal nor democratic nor a party) are likely to win the upcoming July election in the upper house of the Diet on the basis of their performance so far, the fact is that there is still quite a lot to be desired in the Abe program.

The most important omission is of anything dealing with Japan’s disastrous demographic trends. On its present track, Japan’s population in the year 2050 will have fallen from today’s 127 million people to somewhere between 88-105 million of which about 40 percent will be more than 65 years of age. Less than two young workers will be available to pay the cost of one retiree.

This is an impossible situation. It could easily result in financial collapse and/or political revolution. Fortunately, it is not impossible to reverse. France, for example, has shown that policy measures can be successful in raising the number of children born per woman and the United States, Canada, and the UK have shown the positive potential of immigration. But in order for Japan to have any chance even of just halting these trends, it must do something now. It does not have the luxury of time. Because these trends work themselves out over relatively long periods, dramatic action is required now in order to have even a partially acceptable outcome in 2050.

But Abe has not taken any serious step in this direction so far. Take something as seemingly innocuous as live-in house maids from the Philippines. Asian and Middle East countries are full of live in Filipina housemaids. Yet they are virtually absent in Japan despite the strong demand of the hospitals and healthcare facilities and wealthy Japanese housholds . Why is this the case? Well, I as a  non-Japanese can pretty easily obtain a Japanese visa for my ownFilipina maid. But a Japanese citizen cannot get the same visa for his maid.

I could go on, but the bottom line is that if Abe does not bite the bullet on population aging and shrinkage, quantitative easing, inflationary expectations, exports, and all the rest won’t mean a hill of beans. None of it will matter at all if the only Japanese left are in wheel chairs in nursing homes.