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Not long after the earthquake and tsunami of 2011, John Dower, the great scholar of post- war Japan, wondered whether the shock of the tragedy might stir change, whether something new might be 'cracked open' or 'set in motion', as he put it. For years, people had speculated about what it would take to get Japan moving again. … The threat of being colonized in the nineteenth century led Japan to jettison feudalism almost overnight in the Meiji Restoration of 1868. Defeat in the Second World War caused it to pursue 'greatness' by economic, rather than military, means…
That sense of foreboding - and possibility - was there in the weeks and months after the great tsunami of 2011.. ...Yet, for the most part, during the time I took to write this book, it would be hard to have claimed that Japan had seized the moment. The authorities cleaned up the debris with admirable efficiency, but then seemed lost for inspiration as to what to do next. Economically things got, if anything, worse….
Then, something curious happened. A few months after I finished the first draft of the book in the autumn of 2012, a palpable sense of optimism, or at least of heightened expectation, returned to Japan. The cause of the excitement came from perhaps the most unlikely source imaginable: the re-election of one Shinzo Abe. Abe's first term as leader, which lasted less than a year, had, after all, been an unmitigated disaster, a catalogue of pratfalls from a man whose nationalistic and sometimes reactionary convictions were out of step with the broad electorate. Why on earth would his re-election in 2012 - he took office on 26 December, like some belated Christmas present - provoke anything other than a dreadful sense of dejà vu? The answer was that, in contrast to Abe Mark I, who had exhibited a fondness for revisionist causes but profound lack of interest in matters economic, Abe Mark II came armed with an economic blunderbuss. It was called 'Abenomics'…
Abenomics came in three flavours: monetary expansion, fiscal expansion and structural reform. Abe called them three arrows, a reference to Motonari Mori, a sixteenth-century daimyo lord who had told his three sons they would be stronger if they worked as a team. It was easy to break the shaft of one arrow, the daimyo had explained, but nearly impossible to snap three shafts bound together. Abe let loose his first arrow almost immediately: a spending package worth roughly $110 billion at the time, or 2 per cent of gross domestic product. The money would be spent mainly on infrastructure, including repair and construction of earthquake-proof roads, bridges and tunnels. Unshakeable bridges, not bridges to nowhere. The second arrow was the appointment of a new central bank governor to carry out radical monetary expansion….
The man Abe installed at the Bank of Japan was Haruhiko Kuroda, a finance ministry veteran who had long been scathing about the bank's impotence in the face of deflation. An international figure and fluent English-speaker, Kuroda was head of the Asian Development Bank, a regional institution bankrolled by Japan. He had the right balance of gravitas and sense of mischief to oversee the change, which meant telling proud officials at the central bank that they had been getting everything wrong for years. At Kuroda's first board meeting, the bank agreed to a volte face. It would double the monetary base - the notes, coins and electronic money in circulation - to around 55 per cent of GDP by the end of 2014, more than twice the level prevailing in the US and Europe. To achieve this, the bank would massively step up the amount of government bonds it bought. The idea was that, with no more government paper left to buy, Japan's banks, pension funds and insurance companies would be forced to put their money into riskier assets such as property and shares. Alternatively, they could invest abroad, which would weaken the yen. In fact, a weaker yen was very much part of the plan, although international etiquette meant Japanese officials had to pretend otherwise….
By May 2013, six months after the idea of Abenomics first took hold, Japan's broad stock market had risen 65 per cent, its steepest rally in decades. It went on to rise yet further, but lost some of those gains in a rocky June when markets and commentators alike began to lose their nerve in the ability of Abe's plan to turn the economy around. Still, the yen, which had been as strong as Y77, to the dollar, fell to about Y100, a collapse that made Japan's exports immensely more competitive. The central bank, confident of reaching its inflation target, raised its growth forecast for 2013 to a pretty respectable 2.9 per cent. Despite the market wobble, investors who had bought the Abenomics story were cashing in. One told me jokingly that he ended all his emails, 'All hail to Abe'….
Abe's promise to restore economic vigour had not been his only selling point. Voters were also looking for someone who could stand up against China. Changed international circumstances had transformed Abe's nationalism from a negative to a positive in many voters' eyes. For months before his re- election, Sino- Japanese relations had been darkening over the issue of the Senkaku, the five uninhabited islands in the East China Sea known as the Diaoyu in China. Tokyo regarded the islands, incorporated into its territory in 1895, as indisputably Japanese. Beijing said they had been Chinese since ancient times and were stolen. In the summer of 2012, Shintaro Ishihara, the octogenarian rightwinger, in what proved to be his last significant act as Tokyo governor, began to raise private donations to buy three of the islands and develop them. His aim was doubtless to provoke China and to prod his own government into taking a stand. He succeeded on both counts….
[I]n the interests of avoiding friction, the Japanese government decided to scupper Ishihara's plans by buying the islands itself. That way it could leave them undeveloped - and, it thought, take the sting out of the dispute with China. It was a spectacularly clumsy piece of diplomacy. From Beijing's perspective, Japan had 'nationalized' the islands and thrown down the gauntlet.
On the day Tokyo purchased the islands for a little over $20 million in September 2012, all hell broke loose. The worst anti-Japanese demonstrations since the war erupted in fifty-seven cities across China, where tens of thousands of protesters took to the streets, torching Japanese factories and ransacking Japanese shops. …
This was the background to Abe's re-election. Many Japanese voters were wary of Abe's revisionist tendencies and social conservatism. Yet there was a growing nervousness about China's intentions that made the election of a strongman more palatable….His re- election coincided with a once-in-a-decade political transition in China. Xi Jinping, the new Chinese president, was in no mood to appear soft either….
Though we have got used to the idea of Japan's inexorable economic decline, it remains quite comfortably the third-largest economy in the world, the size of the combined economies of Britain and France and three times the size of India's. It is the richest economy of any size in Asia, its citizens, on average, eight times wealthier than the Chinese. For all its many problems, Japan remains the pre-eminent example of a non-western country catching up with advanced living standards. It seems a safe assumption that, whether Abenomics works or not, Japan will remain one of the world's top five economies for several decades to come.
Just as in the 1980s, when Japan was wrongly assumed to be on the verge of economic supremacy, so in 2013 it has been prematurely written off. Two 'lost decades' and its manifold problems notwithstanding, reports of Japan's demise are exaggerated.
(Reprinted with permission)
BENDING ADVERSITY: JAPAN AND THE ART OF SURVIVAL
Author: David Pilling
Publisher: Penguin
Pages: 430
Price: £20
