Japan 2008East Asia Resource Center

July 11, 2008Tokyo, Japan

Robert PekkanenUniversity of Washington

How is Japan in Transition?

• Society

• Economics

• Politics– Domestic– International relations

Transitions in Society

• Aging Society

• Lazy Youth!

• Rising nationalism?

Lazy Youth

• “furiitaa”– ‘furii’ (free) + ‘arubaito’ (part-time job)

• NEET– Not in Employment, Education, or Training

Economic Transitions

• Recovery at last

Whatever happened to the “Japanese Economic Miracle”?

• Short answer: the “bubble” burst, ending the high-growth period

• Framing the Bubble• Economic slowdown is typical

• Japan had been growing very fast before

• The “bubble” is atypical

The Bubble

• What is the bubble?

• Why did it burst?

• Why has repairing the damage been so slow?

What is the bubble?

• Rapid asset inflation

• 1990 Japan’s real estate value $24.89 trillion– Half of all real estate value on Earth

• 1987 Japanese stocks value 42% all world stocks– ANA traded at 305 earnings

• Lending frenzy in the bank

The Bubble Bursts

• WWII destruction $195 billion (1995 prices)• Bubble burst 3 years, lost value of land and

stocks $8 trillion– 40 times WWII loss in absolute terms– Relative terms 2 years national economic output vs.

one year for WWII

• Causes– Inevitable– MOF mistakes

Why has recovery been slow?

• It was a big bubble• Slow bearable pain versus short sharp

pain• Japan’s continued to grow in the 1990s

(1% a year) with low unemployment

• N.B.: Fiscal deficits and other economic problems continue—exacerbated by demographic change

Domestic Political Transitions

• Transition from the “’55 system” (1955-1993)

• Now: A new system slouches towards being born– 3 party (or 2 ½ party system)– Stronger Prime Minister (PM)

’55 System Now

International System Cold War New World Order

Major Threat USSR North Korea, China

Japanese Economy Fantastic Tepid

Electoral System SNTV MMD MM (SMD and PR)

Party System One Party Dominant 2 ½ Party System

Party in Power LDP LDP in Coalition

Opposition Party JSP DPJ

Prime Minister Weak Popular – and stronger institutionally

Bureaucratic Power Dominant and mostly scandal-free

In relative decline – and scandal-ridden

Public Opinion: on US Alliance

Split Favorable

Public Opinion: on Constitutional Revision

Not strongly favorable Supported

TV Not important Important

Party Politics Today

• LDP romped in 2005 Lower House election (House of Representatives, the more powerful house)—its greatest electoral victory ever

• LDP pummeled in 2007 Upper House election (House of Councillors)—its worst electoral defeat ever

Divided Government

• Political impasse– LDP controls lower house– DPJ controls upper house– Lower House can overrule Upper House with 2/3

majority override (which LDP has…now)• Koizumi rode off into sunset in 2006• Abe flamed out in 2007• Fukuda polls very low numbers• Nobody knows what’s going to happen

– LDP heavyweight: “It’s like being on the deck of the Titanic. Everyone knows its going to sink. We’re just waiting to see who knows how to swim.”

International Political Transitions

• Relations with China– Increasingly important economically

• Part of “economic transitions”

– Very tense politically– “good economics, bad politics”

• More assertive Japan– Japanese SDF troops in Iraq– Changing the Constitution?

Japan rich, China growing

Large Scale Economies • Per capita GDP 2005

– US $42K– Japan $30,700 – China <$1000

• GDP (ex rate)– Japan $4.84 trillion – China $1.79 trillion– USA $12.47 trillion

• GDP PPP– China $8.18 trillion– Japan $3.91 trillion

Positive Forces

• Above all, economics

• Trade

• Investment

• Aid

Trade• China-Japan trade is large & increasing

• Two way trade– Each imports more from the other than

from anywhere else– Japan #1 export market is China

• Cheap Chinese imports in Japan

• Expensive Japanese imports in China

Japan-China trade in US$billion

Frictions

• Security– Not just Japan-China but tied into

fundamental or at least highly significant shift in Japan’s diplomacy and security policy

• Disputed Territories

• History

Territorial Dispute:Senkaku/Diaoyutai• Undersea fossil fuels at stake

• China has begun drilling for undersea gas on their side of the border

• Japanese rightists lighthouse 1996

History

• Apologies

• History Textbook Controversy

• Yasukuni Shrine

Anti-Japanese Protest China 4/05

History Textbooks

Japan-China: Where to from here?

• Bad politics, good economics

• Forces for conciliation and economic partnership on one hand

• Strategic considerations and history problems on the other

• Likely increase in tensions for some time to come, but danger comes if it boils over in nationalism

Japan in Transition: Conclusions

• Demographic change is slow, but will transform Japanese society in the future

• Japan of today is politically and economically clearly distinct from the Japan of 15 years ago– Sharper transitions here than in society