Japan: Opportunities After the Crises

By Jacob Hershey

Last summer, Naoto Kan became Prime Minister as head of the Democratic Party of Japan (DPJ) invested with the hopes of a nation for a new style of leader. After a line of unpopular and ineffective Prime Ministers, Kan made immediate efforts to reset foreign relations. His actions were on track to remedy pieces of Japan’s sad portfolio of economic problems, but a botched tax increase in June 2010 began the erosion of his tenure into business as usual.

Just before the crises hit in early March, Kan was facing calls to resign over a funding scandal and an imminent budget battle with the Liberal Democratic Party (LDP). One month on, it seems things have changed. With most of the country calling for a unified response to the national emergencies, the conciliatory political environment in this post-crises moment may be the key ingredient to give Kan greater authority in addressing fundamental issues beyond reconstruction efforts.

Far from being a naturally gallant politician, Kan’s responsive actions to the crises have made him appear a more competent leader, surrounded by a good team capable of taking decisive action. This is indeed an opportunity for him to show real leadership and polish his party’s image, but it is also a time when truly bold steps could be taken to tear down historical impediments to Japanese progress, if only Kan were bold enough to take them.

After the 11 March earthquake and subsequent tsunamis, transportation lines in Japan have been struggling to provide food, fuel, and water to the north-eastern Tohoku region, and those same interrupted supply chains are failing to get parts and technologies out of Japan to the rest of the world. The Bank of Japan (BOJ) has acted swiftly and, backed by a rarely seen cooperative G7 intervention effort, injected trillions of yen into money markets to stabilise  its economy, though automobile and electronics manufacturers are suspending or scaling back production in response to real or potential parts shortages, both in Japan and with Japanese subsidiaries elsewhere in Asia and the United States.

Concerns will surely grow in the future, kneejerk though they may be, as to the stability of investment in Japan, both from foreign sources and domestic. However, the BOJ’s actions have already placed the yen on track to, at least in the short-term, be the favoured international trading currency. JP Morgan Japan’s Jesper Koll predicts that a combination of the BOJ funds and historical circumstances – clearly different from those after the 1995 Kobe earthquake – are set to end Japan’s long deflationary trends. While he argues that dwindling direct investment in Japanese domestic manufacturing will accelerate the sector downwards, other analysts are pointing out that the global impact of the supply chain interruptions being seen are actually a strong reaffirmation of Japan’s important role in high technology goods. Played correctly, Prime Minister Kan could claim much of this as his own doing tied to a broader set of policy goals.

Certain political and social landmines have kept Japan from responding to the crises as a truly modern nation. The first complication arose from Tokyo Electric Power Company’s (TEPCO) handling of the nuclear situation in Fukushima, where officials were reticent in  divulging  information that could potentially have helped avert much of the crisis. Besides the folly of putting off using seawater to cool exposed fuel rods for fear of damaging the company’s investment in the plant, this closed and secretive style of business operation is not new to Japan.

Industry players and regulators are often one and the same, and it is no coincidence that legislators often find high-paying board seats at the end of their careers at companies to which they have historically been friendly. This cycle of industrial inbreeding has made Japan one of the more corrupt bureaucracies in the industrialised  world, and it is time the nation embraced a more transparent system of information and accountability. However, in a culture of non-confrontation, where it is common for doctors to not tell elderly patients that they have cancer to save them from worrying, this will not be an easy shift, no matter how much scepticism the Japanese are developing for official statements from the big companies like TEPCO.

For years economists have talked about the inflexibility of Japan’s labour market due to its excessively strict immigration policy. Foreign workers that do make it into the country have no chance of attaining true citizenship for themselves or their children. It is often said that Japan has an island mentality, with little to no understanding of, or thought for, anything outside its borders, and this persists especially in its understanding of nationality. Japan has long perpetuated its own sense of exceptionalism as a means of self-definition in contrast to other peoples of the world, especially within Asia, despite the mainland origins of many of the archipelago’s early inhabitants and the Imperial family.

As testament to this, Kan’s funding scandal started because he took “foreign” donations from Koreans born and raised in Japan. This, combined with the limited worldview reinforced in Japanese schools, has informed the overtly racist insistence on keeping Japan “Japanese”, despite a declining population and economy. Should Kan choose to forward a progressive immigration policy to reinforce economic gains that might come out of these crises, it could be a big step in a profitable direction.

Past weeks have seen media coverage overwhelmingly focused on the continuing nuclear crisis in Fukushima. But while there are still great difficulties to be overcome in mitigating the lasting effects, it will not be another Chernobyl. Though many supply chains are still disrupted, they will progressively improve. While many Japanese have rallied around the word "rebuilding”, much the way Americans rallied around the idea of nation rebuilding after 9/11, in truth, no clear definition of “rebuilding” has emerged from the discourse. Japanese politicians and citizens need to engage in serious discussions about what the nature of rebuilding will be  for a country overly reliant on superfluous construction. This is especially true regarding geographic areas whose population and industries were already in decline before the March crises struck.

Still, there is a huge opportunity for Japan to obviate, or at a minimum lessen, a number of issues that have plagued the archipelago for decades. It remains to be seen whether or not Prime Minister Naoto Kan will have the wherewithal or determination to maximise the potential silver linings of these tragedies.


13 April 2011