Japan’s young fret as unexpected recession kicks in



When Prime Minister Shinzo Abe responded to Japan’s surprise recession by delaying a sales-tax increase, it was a cause for worry, not celebration, for many young Japanese. This generation, barely aware of their country’s economic heyday, frets that putting off tough decisions now could make the future even worse.

Despite Abe’s unprecedented stimulus efforts — almost everything short of dropping money from helicopters — Japan has slipped into recession less than two years after the last one. With the country’s debt rising, population aging and job security fading, young people in particular wonder when, and if, Japan will bounce back.

“This is our children’s future,” said Mai Yamaguchi, a 29-year-old trading company employee heading into the gaudy Shibuya shopping area for an outing with her 4-month-old son and two other young moms and babies. “Child care, elder care, social welfare are all going to be even bigger burdens for us.”

Under pressure to reduce the developed world’s heaviest per capita debt burden, at over ¥1 quadrillion ($8.5 trillion), Abe raised the sales tax from 5 percent to 8 percent in April, and was supposed to increase it to 10 percent next year. But after the economy, already fragile after two decades of malaise, shrank for two quarters in a row, he put off the second increase until 2017.

Yamaguchi was unimpressed by that decision. “I’m grateful to Mr. Abe for his policies to improve child care, but putting off the tax increase, well, they say the pension system is on the verge of bankruptcy. I think it would have been better to go ahead and raise the tax as planned,” she said.

The generation born as Japan’s economic bubble burst in the early 1990s will be supporting a vast cohort of retirees. Though their nation is rich, with ultra-modern public transport, low crime rates and excellent public health services, most are making do without the security of lifetime employment enjoyed by their parents and grandparents.

Meanwhile, Japan’s economy is being eclipsed by neighboring China, whose up-and-coming tech and industrial companies are increasingly potent rivals.

Low birthrates and increased life expectancy mean that Japan’s working age population is thinning out while the number of retirees and centenarians is swelling. The rapid aging of Japanese society is so evident in the mix of pedestrians on the street, in the media and in political discourse that it’s an issue on just about everyone’s mind.

Ryosuke Sunaga, a college senior decked out in his best job-hunting suit and brand new briefcase, said that by the time he has kids, he expects the sales tax will be at least 15 percent.

On Friday, Abe dissolved the Diet for a Dec. 14 snap election he is calling to seek public approval of the tax hike delay and to affirm public support for his all-or-nothing policies to revive the world’s third-largest economy.

He has pledged to vanquish Japan’s long stagnation by injecting tens of trillions of yen into the economy, pushing prices higher and the value of Japan’s currency lower. He also has promised a sweeping and drastic overhaul to help improve the country’s crumbling competitiveness.

So far, that combination, dubbed “Abenomics,” has yielded mixed results.

Profits of big exporters have surged, thanks to the weaker yen, but higher costs have hit households and smaller companies. Despite some wage increases, many ordinary Japanese feel less well off than before, thanks to longer-term declines in wages and purchasing power.

“I’m not a permanent employee, and that worries me,” said Kaori Endo, a 21-year-old bread factory worker from Ibaraki Prefecture.

“Right now I’m living with my family, but I’m thinking about how I will support my parents. If I were a full employee, my parents would be less worried,” said Endo, who plans to take professional tests to help improve her job status.

Over the past two decades, Japanese manufacturers struggling to compete with rivals in China have grown increasingly reliant on temporary or contract workers. Budget cuts have extended such practices into other fields such as teaching and nursing. Today, about 4 in 10 Japanese work in part-time or contract jobs with little job security and scant benefits. For young Japanese, permanent, career-track jobs are the exception, rather than the rule.

As lawmakers rush to prepare for the election, Abe is renewing his campaign to persuade Japanese companies to raise wages and offer more opportunities for women workers. He also has promised to slash corporate taxes beginning next year to entice companies to invest more in Japan.

In the meantime, Abe has been pushing ahead with cuts to social welfare, raising health insurance premiums and co-payment requirements for all, including retirees.

Ultimately, Japanese taxpayers will end up shouldering an even greater share of the country’s surging costs for health insurance, elder care and pensions, said Koichi Hamada, an economic adviser to Abe.

“It’s not very fair to poorer constituents, but still we have to go ahead with the consumption tax hike,” Hamada said.

College student Yuto Tanaka, 19, said he knows that there’s millions of yen in debt for every person in Japan. But fretting won’t resolve that problem, and neither would an immediate tax hike, he said.

“If they raise the sales tax now, it will hurt the economy and tax revenues will fall anyway,” said Tanaka, taking a break at the bustling intersection in Shibuya known as “Scramble” before heading to classes.

“We have to hope,” he said. “If Japan falls to pieces, our society will be finished. We have to muddle through.”

  • Japan’s Unexpected Recession?

    It was a given as soon as Abenomics was unveiled.
    The laws of economics dictated this recession.

    The only unknowns: when, how bad and for how long?

    • James

      Three months later, Japan is out of recession.

  • Chris Bartlett

    Sales tax is not a progressive tax, it hits the poor hard and barely touches the rich. Japan should think about introducing basic income as well which would simplify welfare and pensions and boost the economy.

    • Why should any tax be progressive? How exactly does punishing producers help the economy and how is that morally justifiable?

      • Chris Bartlett

        I’ll be generous and assume you are referring to the job creators argument, obviously the very rich themselves often produce very little. The job creators argument is ancient and completely disproved by the evidence. It’s brought down by multiple facts which include: 1. Success in entrepreneurship is in large part (not entirely of course) down to luck. (no one is saying behind entrepreneurs shouldn’t be rewarded for the effort and risk they put in and take). That luck is in part linked directly to ventures but also comes from birthright, including family wealth, education, contacts, and level of parenting 2. Entrepreneurs actually tend to destroy jobs overall rather than create them, not necessarily a bad thing in itself, but it puts pay to the job creators argument. 3. Economies are at their most vibrant when inequality is low as there are more consumers and more people have the money available to find education and take risks by changing jobs or starting businesses. 4. In most cases it takes money to make money, wealth (and poverty) almost always get inherited and social mobility is actually very low on the current developed world. 5. Those who inherit money deserve to credit for producing it. 6. There’s a huge amount of crony capitalism of varying ethically and legally, some is legal corruption, but still corruption. The fact that court cost are so high also excludes all but the rich from the legal process. 7. Business owners vastly and conveniently underestimate how much they disproportionately rely on tax payers, they benefit from direct subsidies, the education system, health system, roads and transport, legal system and of course the police and army to protect their wealth.

        I realize not all of those directly address whether tax should be progressive, but they all have some relevancy. I also don’t have space or time to reference them myself, but it doesn’t take a lot of effort to Google them.

        If you’re struggling to agree from that side how about from the other? How can it be right to tax the poorest, many of who are already without disposable income and so will literally be giving up the basics to pay it, in many cases the only people disinsentivised to work harder by punitive taxes are the poor not the rich.

        Ultimately what’s more important morally rewarding the rich even more or ensuring the poor can feed their kids?

      • Chris,

        Thanks for your very cogent and well argued reply. Rather than address what I may disagree with let me focus on the two points where we appear to have some common ground on. :) First, Crony Capitalism. This incenses me as does its enabler, Regulatory Capture. Second, regarding inheritance of poverty and wealth, this is often true, however, from my research and observations this is primarily a regulatory issue (e.g, regulatory capture and barriers to entry to lock in wins/gains) as well as a programming issue (poor people are programmed to be subservient, focus on drinking, watching sports, chasing skirts, etc.) — however, after reading two works by the UC Davis economist, Gregory Clark, there seems to be a very ,very strong genetic component. Have you seen these two works? “The Son Also Rises: Surnames and the History of Social Mobility” and “A Farewell to Alms: A Brief Economic History of the World”. Fascinating stuff. Cheers – James

      • Chris Bartlett

        Hi James,

        Thank you for your kind words, it would be refreshing to focus on areas of agreement!

        Crony capitalism is absolutely reprehensible both to those that believe in pure capitalism and those who advocate heavy government regulation and redistribution. Yet it is absolutely rife in the world today. Regulatory capture as you say is a major component of this. We should all work to eliminate it as it hurts everyone except the laziest people of all.

        Certainly regulatory capture and crony capitalism make it possible for otherwise completely inept heirs to maintain the power/wealth they inherit, although I am of the opinion this in itself is not the only factor, it is without doubt easier to make money when you have money for a myriad of reasons.

        In terms of programming, or conditioning as Huxley put it in Brave New World, most people are programmed by the education system to be good little workers and good little consumers, these days preferably consumers that spend as much of their money as possible for as little return as possible in terms of real resources (think cheap beer, small apartments, digital goods, leaving real resources to the rich). This is what the ruling class want of course, the children of the ruling class get different educations (I know, I got that kind of education). That said no one spends as great a proportion of their time drinking, watching sports and chasing skirt as the very rich and their families (especially those with inherited wealth). Sure true entrepreneurs like Bill Gates and Warren Buffett are the exceptions, but they are far and few between as a proportion of the very rich. I’m not really complaining about smaller entrepreneurs, doctors, artists etc… although they must pay a fair share of taxes on what they earn.

        In term of genetics, I am not convinced, the The Son Also Rises: Surnames and the History of Social Mobility only convinces me that social mobility is low and the wealth can flow down families for hundreds of years (remember genetic dilution would be immense over these scales), and where wealth is lost for some reason, patterns of thinking are passed down instead and produce wealth again when the time is right, we very much saw that in China where many of the rich families today were rich families before the communist take over and lost everything in the takeover only to earn it back again later. However even if genetics was key, and certainly intelligence helps and intelligence has a major genetic component would this not be an even stronger argument to redistribute wealth, as the poor perhaps never had a chance in the first place? I actually don’t believe even poor people who might be a net drain on the economy are without value, apart from the ethical value of all human life, you cannot be sure that they don’t hold some vital genes, way of thinking etc… that might at some point in the future be crucial to the survival of the human race or its progress. In any event I just don’t believe that most people want to sit around doing absolutely nothing productive, anyone who does probably needs psychiatric health for depression.

        To be clear I believe in capitalism as the engine of the economy, but channelled in so far as it’s power is tapped in a way that ensures that as far as possible everyone is able to have their basic needs met and exceeded to the point where they are able to better themselves and take part in civil society. I also want to see pollution controlled and in the case of something like CO2 emissions, the damage properly costed into the system. I think we have the resources to provide this for people, and the benefits in doing so will pay for themselves. I think a basic income is the correct answer, it would be effective and simple to administer and fair to everyone. It would provide lubrication to the workforce and make it easier for people to improve their position and find the most suitable work for them. I think it would also improve the economy and drive technology forward as resources were better deployed. It’s quite possible that despite paying for this initially the rich would end up better off both financially and in terms of their quality of life (and they wouldn’t face a modern French revolution either).

        Once everyone has their reasonable human needs taken care of we can let capitalism (true capitalism) divide up the rest.

        As a final aside, do you not prefer being in Japan where equality is relativity low than the US, UK or India where it is so high? Personally I find the solidarity equality allows in Japan refreshing, not to mention the low crime rate and rational outlook of most of the people.

      • Hi Chris,

        Crony Capitalism = morally reprehensible.

        Regarding the genetics, I think it is in Son Also Rises but he looks at Korean adoptees (from Korean War carnage) brought into American families, apparently given same love and access to resources, etc. He’s not comparing Koreans to Americans but that many of the adoptees can from lower class origins versus the adopters. And just to be clear, I’m not saying genetics is everything, since I see it as car engine — it’s the foundation but learning to supertune an engine and drive can take you very far vs an out of tune big block. Also, we’re learning more and more that our genome is readily adaptable, with epigenetics and such. Exciting times. :)

      • Chris Bartlett

        Yes, I would guess that the hardware capabilities (memory, speed etc) are genetic as is the firmware, but the operating system you get programmed with and the data you put in is environmental. Certainly exciting times for genetics and neuroscience.