G-20 nation profile: Japan
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Here is an overview of Japan, one of the Group of 20 countries attending the upcoming summit in Pittsburgh.
WHO IS THE LEADER FROM JAPAN ATTENDING THE G-20 SUMMIT IN PITTSBURGH?
Following his party's landslide victory on Aug. 30, this will be the first major overseas engagement of newly elected Prime Minister Yukio Hatoyama. His Democratic Party of Japan has just wrested control from the Liberal Democratic Party after more than 50 years of almost uninterrupted conservative reign. Mr. Hatoyama is a fourth-generation politico from a wealthy, influential family, who has a Ph.D. from Stanford. His biggest challenge: how to re-energize the ailing economic giant he now presides over.
WHAT ARE THE CURRENT ECONOMIC CONDITIONS IN JAPAN?
Although a wide range of economic data -- unemployment aside -- are showing signs of recovery that at first glance appear impressive, these must be taken in context of their recent record falls. A case in point: Factory output jumped 8.3 percent in the April to June quarter, the fastest rise since 1953; though this was after a record 22 percent drop in the preceding quarter. Similarly, many leading Japanese companies are making money again, though that's been achieved through some brutal cost-cutting that has led to unemployment rising to 5.4 percent, and wages falling 7.1 percent from a year ago. This will inevitably weaken domestic consumer demand, which was notoriously tepid even during the good times. The low point may well be remembered as March this year, when the country's all-important exports had halved compared to a year earlier.
WHAT IS THE GENERAL MAKE-UP OF THE JAPANESE ECONOMY?
Japan remains the world's second-largest economy at approximately $5 trillion, though it looks set to be overtaken by China, possibly before the year is out. Japan's global brands in the automotive and electronics sector -- and the myriad of smaller companies that supply them -- form the most important pillar of the economy, and it is these that were hardest hit during the slump. Recovery in U.S. consumer demand and Chinese capital expenditure on heavy machinery remain key to meaningful growth in the Japanese economy. Land prices continue to fall and stock prices remain at around a quarter of the levels they attained at the peak of the bubble at the end of the 1980s.
With the combination of falling wholesale prices, sluggish demand and retail price wars, deflation is perhaps the biggest danger that could hamper recovery in the short term. Over the longer term, the demographic time bomb of a falling population, and public debt set to reach 200 percent of GDP, are the unavoidable challenges that a generation of ruling politicians have steadfastly avoided.
WHAT IS MR. HATOYAMA HOPING TO GET OUT OF THE G-20 SUMMIT?
The financial crisis has brought home Japan's dependence on international trade, and particularly on spending by American consumers, so Mr. Hatoyama will be looking for signs that the current beginnings of a recovery aren't a false dawn. He has suggested he would like to see a free-trade agreement with the U.S. and this high profile gathering may be the time to begin discussions. First and foremost, though, this is Mr. Hatoyama's chance to establish himself on the world stage and add some gravitas to his image back home. The Japanese populace has become jaded about politics in recent decades but the victory of the Democratic Party of Japan gives some hope for a new start and a chance to show that politicians can make a difference.
WHAT ELSE SHOULD WE KNOW ABOUT JAPAN'S CURRENT POLITICAL AND ECONOMIC SITUATION?
Record unemployment and by far the highest public debt levels of any G-20 country weigh heavily on Japan, even as the early signs of a return to growth are emerging. Although Japan is entering a historical new political era, it should be noted that almost all senior figures in the new party started their careers in the one they just defeated, so radical change is unlikely.
First Published September 12, 2009 12:00 am
