Commentary / Japan

Japan's economy is far from hopeless

by Daniel Moss

Bloomberg

Stop seeing Japan as a wasteland.

The country’s economy, the world’s third largest, still matters. Japan isn’t stuck in a hopeless demographic-driven hole without escape. Rather, the three decades since the bubble burst have had their ups and downs.

Look at the fourth-quarter gross domestic product numbers published last Thursday. They aren’t brilliant; they aren’t terrible. What makes them interesting is their ordinariness: Most major industrial economies had, at best, a tepid end to 2018. Japan has company.

There’s Germany. Its economy shrank in the third quarter and is likely to turn in a mediocre report card for the fourth term. The U.K. and France are hardly models. China, the world’s darling after its Japan love affair dissolved in the 1990s, is a source of global vulnerability these days, not strength. Outside America, it’s looking pretty uninspiring — and even there, things are cooling.

Overall, Japan’s figures show a modest rebound from a contraction in the prior three months, when natural disasters dented activity. Growth was an annualized 1.4 percent, in line with estimates. Yet the components are perhaps more interesting.

Japan’s exports suffered in the fourth quarter, suggesting that trade to China took a hit. It’s hardly a shocker that a country with high exposure to the world’s second-biggest economy would be harmed by the slowdown there. China’s softness is ricocheting through Asia and beyond. Japan’s performance looks decidedly mainstream in this regard.

Private consumption rose 0.6 percent from the September quarter, a tad less than anticipated. One real head-turner is the 2.4 percent jump in business investment. Economists had penciled in an increase of 1.8 percent.

So when Japan’s performance is critiqued, what’s the basis of comparison? There are a number of things going right with Japan that don’t get enough attention. High on that list has to be the labor market. The jobs report this month showed an unemployment rate of 2.5 percent.

Oh, don’t pay too much attention to that, the naysayers crow. That microscopic jobless rate is just those darned demographics again. Well, okay … but demographics were supposed to spell doom.

We need to reset the narrative. Does Japan have its challenges? You bet. The planned increase in consumption tax later this year will be a hurdle; the last hike in 2014 was blamed for a recession. And GDP as a measure of overall performance has its opponents.

And, yes, an aging society and shrinking population are right up there. Then again, they could just as easily become strengths. Even the country’s notorious distaste for immigration is being chipped away. I wrote about these themes here and here.

But let’s stop saying nothing in Japan is ever good enough. I can’t help but think that Japan wouldn’t be such a scapegoat were it not for the go-go era of the 1980s and the lionizing of its business practices — just the way people gush over China’s economic superlatives.

In Japan’s case, don’t let the perfect be the enemy of the good. Or the merely okay.

Daniel Moss is a Bloomberg columnist. Previously he was executive editor of Bloomberg News for global economics, and led teams in Asia, Europe and North America.