Occasionally in this space I refer to a financial writer called “Gucci-san” who contributes a weekly column to Aera. Apparently, he works for an investment consulting firm that does a lot of work in mergers and acquisitions. In a recent piece he said that some of his clients are involved in importing and exporting, and while the yen rate may affect their bottom lines, it doesn’t change the fees his company charges them. In other words, though the media is now getting all excited over the fact that the yen’s value against other currencies is dropping slightly, “that change has no merit for me.”
He then asks readers whether it will have a positive effect for them. “If your company increases exports as a result of the weakening yen and makes more profit, will your salary go up?” He’s guessing it won’t, since during the highest postwar growth period of 2002-07, when the yen was much weaker, salaries were stagnant and disposable income actually went down. More relevant to the average person is the cost of living, so a drop in the value of the yen has more of a direct effect “on people’s wallets,” says Gucci-san, especially in terms of everyday import-intensive items like food and gasoline, which will go up in price.
Despite all the coverage that blames Japan’s financial woes partially on the strong yen, a weaker yen only benefits a handful of companies, but those companies spend a lot on advertising and have a huge influence on the media and, by extension, the public imagination. Whenever the yen increases in value, companies like Toyota and Sony make a lot of noise, saying they can’t compete, and the government responds by spending tax money to promote sales of their products with schemes like “eco points.” What the media rarely reports is that only 14 percent of GDP is dependent on exports, but business news coverage continues to focus on these big exporters as representative of Japan’s problems, not so much because they are less competitive than they used to be, but because they are prominent relics of a Japan that was once ascendant. The world has moved on, but the Japanese media still thinks in terms of the 1980s.
As of 2010, the country’s population was 128 million, of which 81 million people were potentially “productive,” meaning they were between the ages of 16 and 64. The government estimates that overall population will drop to 120 million by 2025 but the number of potentially productive individuals will be reduced by 10 million, since the burgeoning portion of elderly is not considered productive. According to a Japan Business Federation think tank, growth will stall to 0.28 percent in 2025. Before the 2011 earthquake it was about 3.3 percent. In a separate article in Aera, a chief researcher for the think tank predicts that if this trend continues to the middle of the century, Japan will no longer be considered “one of the world’s advanced countries.”
Obviously, Japan’s population decrease is the main cause of concern, since the country’s manufacturers require a certain amount of labor to maintain their position in the world. Apple just announced that, in light of increasing labor costs in China, it will be moving some of its manufacturing back into the United States. Such a scenario, which hardly seemed possible several years ago, is only viable because of America’s stable population. The labor market for manufacturing in Japan peaked in 1992, so there is little hope that it will revive in Japan as long as the labor force continues to shrink. Japanese companies will continue to move operations offshore, including research and development and even administration, to countries where there is a higher likelihood of commercial growth. Granted, Japan remains one of the most populous countries in the world and has a stable consumer market, so companies can still count on domestic sales, but they are already thinking about the future and acting on it.
The result will be something like what America has gone through over the past three decades, a sizable labor shift into service industries, though it’s not clear if the service sector will grow fast enough to absorb this shift. Government finances, especially at the local level, will be even more strained, and the proposed increase in the consumption tax will not solve the national debt problem if structural cuts aren’t made as well, so it’s assumed that civil servants will be laid off in large numbers, not just to save the government money but to spur the private sector, which will be expected to provide services currently provided by the public sector. In addition, the housing and real estate sectors will contract due to fewer people buying homes and more people working at home, thus cutting demand for office space. Construction will decrease as a result.
But the country will adapt, and already seems to be. Women are joining the workforce in increasing numbers, since men’s salaries are no longer sufficient to support families, and therefore should boost demand. Also, the statistical standard that limits the productive population to people under 65 will have to be changed as more Japanese put off retirement — or never retire at all. And if developing countries become the engine for worldwide growth, those countries will need more food, which could revitalize Japan’s agricultural and food industries. This realization has already hit Japan’s youth, it seems. Last week, Bloomberg reported that new university graduates are no longer interested in working for major electronics makers like Sony because the press keeps harping on those companies’ losses — an example of how the intense media attention mentioned above can work against a company’s interests. But in this case maybe that’s a positive thing, because these students are instead applying to food-related companies. There are only so many TV sets a household can accommodate, but people will always have to eat.