Avoid Japan’s economic fate

Kim Dong-ho

The author is an editorial writer of the JoongAng Ilbo.

Japan’s economy is contracting decisively. It was not imagined that the economy would do this poorly when the country lost the No. 2 position to China in 2010. Its per capita GDP has become smaller than Taiwan’s and nearly on par with Korea’s. According to the International Monetary Fund, Korea’s per capita GDP was estimated at $33,590 and Japan’s at $34,360 for this year.

Japan’s scorecard based on the purchasing power parity (PPP) after currency conversion and elimination of price differences looks even worse.

Taiwan and Korea’s PPP exceed $50,000, whereas Japan has yet to reach the threshold. In wages, Korea has also become richer since 2015 as income has stagnated in Japan over the past 30 years.

In 2020, Korea’s average wage reached $41,960 based on the exchange rate at the time while Japan’s average wage was $38,515, according to data from the Organization for Economic Cooperation and Development (OECD).

Japan’s downfall has been triggered by so-called Abenomics — the economic policy under the late prime minister Shinzo Abe — which was composed of an aggressive fiscal stimulus, monetary easing and structural reforms. Abenomics brought some positive results as stock prices doubled and employment nearly approached the perfect level.

Female participation increased through government efforts to improve their employment and childcare environment. The birthrate has been rising since 2015.

But Tokyo’s ultra-loose monetary policy has made Japanese poorer. The country’s policy was influenced by the heterodox dubbed the Modern Monetary Theory (MMT), which supposes sovereign monetary countries like the United States, Britain, Japan and Canada are not constrained in government spending as they can print as much money as they need. Today, Japan is experiencing inflation of 3 percent, beyond the 2 percent target for the first time in 40 years after decades of deflation.

Housing prices in Tokyo have jumped nearly 50 percent over the last eight years. Japan’s economy peaked out from 1990 from an explosive bubble burst, and it could shake from another bust, albeit in a less staggering scale, from the government’s loose currency policy over the last eight years.

The harm mostly went to the working class. If not for the super-rich, few can afford to live in Tokyo now. According to the Nikkei Shimbun, population in 23 districts in Tokyo shrank for the first time in 26 years to 13.27 million as of January.

A citizen told the newspaper that he had moved out of Tokyo to Tochigi Prefecture in the northern Kanto region for better living conditions. A Yokohama citizen noted that living in Tokyo has become a privilege for a select few rich people. He said some residential units are expensive in Yokohama too.

Japan in the 1960s threatened the U.S. economy with its 100 million population in the middle or higher income class. But it is on a down trend now. The Japanese yen has been crashing. The fundamental cause can be found in loose spending that went to sustaining of zombie companies instead of enhancing competitiveness through innovation and labor and education reforms. There is no lasting magic in economic policy. Aging population also has devitalized the economy.

Korea is walking down the same path of doom. It only talks of addressing low birthrate and rapid aging, anti-business policies and reforms on labor and education fields. Half of global unicorn enterprises cannot do business in Korea.

Japan is going all-out to rebuild its once glorious chip industry. But in Korea, a bill to defend its chip supremacy is only gathering dust in the National Assembly as the Democratic Party, which holds a supermajority in the legislature, oppose it citing a “favoritism for large companies.”

Korea must act fast if it really wants to avoid the unfortunate path of Japan.