Commentary / Japan

Meeting the Reiwa Era's challenges

by Heizo Takenaka

During the three decades of Heisei, which began in 1989 and ends Tuesday, the environment surrounding Japan radically changed. We need to grasp the lessons learned during Heisei and use them to meet the challenges of the new Reiwa Era.

The introduction of a name for the new era is a significant event in Japanese society and it resets the sentiments of many people. Japan is the sole country in the world that officially maintains an Imperial era name system, which in the past was employed by members of the East Asian cultural sphere, including China, Korea and Vietnam.

Japan has been using the system since 645, when the era of Taika started. After World War II, the system lost its legitimacy under the law and continued to be used merely in practice. But the fact that it continued also indicated that the system was well-established in people’s lives even without a legal foundation. A law enacted in 1979 laid the legal foundation for formally reinstating the Imperial era name system.

Showa, which preceded Heisei and spanned 64 years from 1926 to 1989, was the longest-lasting Imperial era name in Japanese history. It was, in fact, the longest-running Imperial era in the world (surpassing the 1661-1722 reign of the Kangxi Emperor in the Qing Dynasty of China). And Heisei, which has been used for 31 years, is now the fourth-longest-used era name in Japanese history, after Showa, Meiji and Oei (during the Muromachi Period).

How shall we sum up Heisei and what lessons should we learn from it?

As far as the economy is concerned, the era is often described as the “lost 30 years.” Indeed, Heisei, as a whole, was never a bright era for the economy. The Nikkei 225 average on the Tokyo Stock Exchange went sharply downhill after hitting a peak of around 38,000 in December 1989 — symbolizing the burst of the asset-inflated bubble boom. Japan’s per capita gross domestic product — a gauge of people’s material wealth — was at the world’s top levels (in purchasing power parity terms) in the early years of Heisei but is now down to around 25th in the world. Its per capita GDP today is less than half the levels of Luxemburg and Norway, which occupy the top positions.

At the beginning of the Heisei Era, seven Japanese companies were among the world’s top 10 firms in terms of aggregate market value. In 2018, the world’s top 10 firms were dominated by eight American companies and two Chinese firms. Only one or two Japanese companies are among the world’s top 50. It’s clear that Japan’s presence in the world economy has declined.

On the other hand, we should not overlook areas where progress have been made over the last three decades. One example is the significant improvement in the digital life of Japanese. As of 2000, only about 30 percent of Japan’s population used the internet — far behind that of the United States and South Korea. However, remarkable progress has been achieved since the government’s IT strategy headquarters set a national strategy in 2000. By the 2010s, the infrastructure was established in all municipalities nationwide for high-speed internet access. Japan also became the first country in the world to fully convert to digital terrestrial TV broadcasting.

Urban development is another area that made rapid advances in the Heisei Era. Up to the bubble boom, the Tokyo metropolis extended its periphery ever wider. But after the 1995 decision to cancel the World City Expo, attention shifted to the urban redevelopment of central parts of Tokyo. That consequently matched the global trend for building “compact cities” — and Tokyo was redeveloped as an attractive mega-city that features compact cities in quarters such as Ginza, Nihonbashi, Marunouchi, Roppongi and Shinjuku. Tokyo is now placed third — only after London and New York — in the Mori Memorial Foundation’s ranking of the world’s top cities.

In short, Japan’s economy of the Heisei Era had both good and bad features. While the past 30 years witnessed a mixed performance, what’s important is that the overall framework of the Japanese economy has been radically transformed. Let me cite a few examples.

Japan’s household savings rate has come down from the world’s top level of around 20 percent to 3 to 4 percent in recent years — which is on a par with the level of Spain and the lowest among advanced industrialized countries. The biggest factor behind the change is a sharp increase in the proportion of the elderly — who live off their savings — in the population. Meanwhile, the nation’s average annual working hours per person dropped roughly 20 percent over the Heisei Era. It is still longer than in European countries such as Germany, but it’s not much different than in the United States and might even be shorter. Therefore, the popular perception that Japanese people save a lot and work hard is no longer true.

Showa is often called a tumultuous era. Heisei can be described as an era of radical changes. In the Reiwa Era, the economy may experience a wave of severe shocks. Currently it’s facing the Fourth Industrial Revolution, which will be marked by greater use of artificial intelligence and big data, and a rapid and destructive advance in technology. Politically, the liberal international order is collapsing and the notions of globalism and free trade are under threat. To adapt to such an environment, Japan needs to change at an unprecedented speed. As we brace for the Reiwa Era, we must be ready to take on structural reform of the economy as well as administrative and fiscal reforms of a much larger and broader scale than what took place in Heisei.

Heizo Takenaka, a professor emeritus of Keio University, served as economic and fiscal policy minister in the Cabinet of Prime Minister Junichiro Koizumi from 2001 to 2005. He is a member of the government’s Industrial Competitiveness Council.