Japan. The biggest event of the year in Japan was the change of government this autumn. The party that has dominated for half a century, the Liberal Democratic Party (LDP), must relinquish power after a landslide victory for the opposition party Democratic Party (DPJ) in the August 30 election.
Center-Left Party DPJ took 308 of the 480 seats in Parliament’s lower house. Liberal Democratic Prime Minister Taro Aso was succeeded by the Democratic Party’s Yukio Hatoyama. Hatoyama, the 62-year-old minister’s son, had 70 percent opinion support, compared to Aso’s race to under 20 percent. Aso was not considered to have succeeded in lifting the country out of the global financial crisis quickly enough. His Finance Minister Shoichi Nakagawa also caused scandal when he appeared drunk and forced to resign at the G7 meeting in Rome in February. He was found dead in October.
According to countryaah, the colorful Hatoyama in his youth sang a pop album entitled “Take Heart”. His wife Miyuki, a former actress, has been aroused by the fact that she and her husband “eat sunshine”, that in their sleep they have traveled to Venus and that Tom Cruise in a previous life was Japanese.
Hatoyama wants to lose Japan’s power structure and give the individual more power. The party has promised to raise the minimum wage and give the unemployed the equivalent of about SEK 7,000 a month. Families should receive SEK 20,000 per child per year to promote childbirth. The population is shrinking, while the country has the highest average life expectancy of 82.6 years.
Government debt is twice as large as GDP and questions are asked about where the government should take the money from. DPJ claims that they will be loosened by dismantling LDP’s overloaded power apparatus. Hatoyama wants to give up less for the United States. A controversy concerns the US airbase on Okinawa. There is a 2006 agreement to move it, but only to the coast. Hatoyama wants to move it completely off the island, which the United States is firmly against. US President Barack Obama visited Japan on November 13. He stressed that Japan and the US will remain “equal partners”. The visit was characterized most by friendship guests and there were no plays on Okinawa.
Hatoyama tripled LDP’s pledge to cut greenhouse gas emissions ahead of the Copenhagen environmental summit in December, from LDP’s 8 percent to 25 percent by 2020. Japan slowly emerged from its deep economic crisis. After six months, it was officially announced that the country was out of recession, but GDP growth was weak: only 0.6 percent in the second quarter. However, it rose to 1.2 percent in the third quarter. Unemployment continued to rise, from 4.4 percent in February to 5.3 percent in September, and consumption was low. According to the central bank, deflation was expected to prevail for three years. Car sales, especially environmental cars, started to improve thanks to government subsidies. Toyota and Nissan, which suffered losses at the beginning of the year, later reported profits.
The currency yen was strong against the weakening dollar. New Finance Minister Hirohisa Fujii said the dollar is still the world’s strongest currency. Japan has the world’s second largest foreign exchange reserve, after China, mostly in dollars. This means that there is reason to keep the dollar exchange rate high.
North Korea on April 5 launched a long-range robot that passed over Japan and landed in the Pacific. Japan responded by tightening its sanctions on the Communist state. However, relations with South Korea and China were quite relaxed in 2009, despite the bitterness still there over Japan’s invasion during the Second World War.
Economic development since 1960
After Japan’s “breakthrough” as an economic power in the 1960s, the economy was characterized by strong expansion. Between 1971 and 1990, annual growth was about 4.5 percent on average. In the 1990s, growth was only about one percent. After 1980, Japan ranked second in the world (after the United States) in industrial production, accounting for around 15 percent of the world’s total GDP. Although Japan’s exports accounted for only 10 percent of the country’s GDP, Japan accounted for just over 10 percent of world trade. In 2000, Japan was still the world’s third largest trading nation after the United States and Germany, but was now increasingly challenged by China.
Export growth led to a large trade surplus in the 1980s and up to the mid-1990s. This, together with high domestic savings, made Japan the world’s largest lender. Especially from the mid-1980s, Japan ran a huge flow of capital around the world, which became a driving force for the world economy. The peak was reached in 1989 with a capital export of about $ 400 billion. In 1990, the 10 largest Japanese banks were also ranked as the world’s 10 largest, but soon several of the major banks were on the verge of bankruptcy.
Strong speculative trends caused stock and property prices to swell, especially in the years 1985-1999 (the “bubble economy”). A sharp turnaround came in 1990 with sharply falling prices. After 60 months of uninterrupted GDP growth, Japan entered 1991’s post-war recession, the longest recession. In spite of large write-offs over the years, in 2003, the Norwegian Financial Supervisory Authority estimated the amount of problem loans at approximately NOK 2,600 billion.
Japan’s economic policy has been characterized by extensive cooperation between the business community and the state. In particular, through the Ministry of Trade and Industry MITI, the government provides guidelines and directives that companies are expected to obey loyally. It is therefore argued that the economy functions rather as a centrally controlled cartel economy than a free market economy. However, considerable deregulation has taken place since the second half of the 1990s. Especially since 1990, the service sector’s share of GDP has risen, while the process industry is showing a decline, partly as a result of the large-scale flagging out of China.
After substantial expansion since around 1960, Japan experienced stagnation in exports during the 1990s. Business has struggled with overcapacity after the large investments of the 1980s. The LDP governments have tried to stimulate the economy with a number of “action packages” and major public projects. The largest of these was launched in the 1998 crisis year with a limit of approximately NOK 950 billion. Around the turn of the millennium, deflation, a lasting fall in the general price level, was a core problem in the economy. In 2003, Japan got a new central bank governor, Toshihiko Fukui, who softened the predecessor’s very rigid monetary policy. More liquidity was now pumped into the economic cycle.
Japan’s economy has shown a mixed picture since the turn of the millennium. Since 2002, the trend has been relatively stable for several years, but occasional growth trends have been unrestrained, and at times switched to deflation with falling price levels. Towards the end of 2005, there were signs of a cyclical upturn, and new hopes of emerging from the deflation trend. The banking sector was finally about to be freshly notified after the crackdown in the real estate and financial markets in the early 1990s. The sum of non-performing loans, estimated in 2002 at approx. NOK 3000 billion, then seemed to be halved. With its reform policy, Koizumi managed to reduce its budget deficit to 3 percent of GDP. The Fukuda government cut state spending and raised VAT to a moderate 5 percent. Governor Toshiko Fukui maintained the low-interest-rate policy by 0.5–0.1 percent key interest rate in 2007-2008. Rising unemployment, to 5 percent in the fall of 2007, ended speculation about higher interest rates.
In 2007, exports showed strong growth, and trade surplus increased by about 60 percent during 2007. Exports increased despite a near record low US currency – about 22 percent of goods sold by Japan go to the United States. Enhanced growth in China gave new benefits to the export industry. The Tokyo Stock Exchange had a periodic upswing in 2005–2007, then to fall sharply back in 2008–2009, when the financial crisis unexpectedly hit the Japanese economy. Japanese banks were in pretty good shape after coming through their own financial crisis, and were not particularly exposed to bad US loans. After 79 months of continuous growth, the longest boom in the post-war period, Japan went into recession in November 2008- which would prove to be the deepest Japan has had since World War II. Overall, however, growth had been very moderate.
The financial crisis in 2008–2009
During the global financial crisis, the yen currency had appreciated significantly, with negative effects for Japanese exporters. Since the mid-1990s, interest rates have been extremely low – several times at zero. This is the basis for the so-called yen carry trade, where investors take out cheap loans in Japan to reinvest the money in other countries where interest rates are far higher. Yen carry trade has been a multi-billion-dollar global lending industry, but with a ticking bomb: As long as the exchange rate was low, there was money to be made, but when the yen currency rose sharply in value, foreign investors suddenly had to buy large amounts of yen to repay loans that had now become much more expensive. This meant a further rise in the yen exchange rate, a bad spiral to the detriment of both investors and Japanese exports.
With the key policy rate below 0.5 percent, the Japanese central bank had little leeway. Instead, the government launched a package of measures of approximately NOK 1100 billion. This should prove not enough. On the Tokyo Stock Exchange, the Nikkei index fell over 40 percent, reaching October 27, 2008, the lowest level in 27 years, followed by a further decline. In February 2009, Finance Minister Kaoru Yosano described the crisis as the worst for Japan since 1945. Figures then showed a year-on-year decline in Japan’s GDP at 12 percent in the fourth quarter of 2008. The new governor, Masaaki Shirakawa, described the crisis as “a storm that comes only once every hundred years”. New crisis measures, the latest in connection with the revised state budget in April 2009, brought the sum of measures packages to around NOK 1,700 billion.
For the first time in almost 30 years, Japan experienced a trade deficit in the fiscal year ending March 31, 2009. The Japanese economy had never fallen as much as in the first quarter, when annual adjusted economic activity shrank 15.2 percent. Exports fell freely, and this quarter was reduced to almost half of what it was in the first quarter of 2008. Japanese exporters had never experienced major order failure. A current topic of debate was now: Would the Japanese economic model, where growth has mainly come from the export industry, still be viable?
Exports picked up again somewhat in the second quarter of 2009. After four quarters of decline, there was now also a slight growth in the general economy by 0.9 percent. However, the hope that the worst could be facing the world’s second largest economy was weakened by rising unemployment and falling prices. Unemployment rose to 5.7 percent in July 2009 – the highest figure since World War II. Failing demand led to a fall in the price index of 2.2 percent compared to July 2008. The inflation rate has since increased somewhat – from 2.52 percent in October 2009 to 2.40 in December 2014.