Bottoming out versus peaking out

Lee Sang-ryeol
The author is an editorial writer of the JoongAng Ilbo.

“Peak Japan: The End of Great Ambitions,” which offers a sobering overview of how once-the world’s No. 2 economy has come to stumble under a long list of debilitating socioeconomic ills, was the book Kim Chong-in — the interim leader of the conservative party which now is the governing People Power Party — handed out to party members for wisdom in policymaking in the summer of 2020.

Today, Japan is far from the gloom. The economy gained 0.7 percent in the first quarter and is on course to achieve an annual growth rate of 2.7 percent. The Korean economy added a mere 0.3 percent in the same first three-month period from the previous quarter. Its annual growth is estimated at 1.4 percent. While Japan is running, Korea moves at a snail’s pace.

Shares traded in the Tokyo Stock Exchange have been at 30-year highs. The main Nikkei 225 Index soared 30 percent this year. Foreign tourists are swarming in every part of the country. In April alone, two million foreigners visited Japan, feeding a surplus of 294.1 billion yen ($2.1 billion) in the travel balance. During the same month, Korea logged a deficit of $500 million in its travel balance.

The deflation that has strained the Japanese economy for decades may be finally ending. Japan’s inflation rate has been on the rise for the 20th straight month, sending the consumer price index 3.4 percent higher from a year-ago period in April. Japanese Prime Minister Fumio Kishida may usher the country out of the long deflationary tunnel — a mission long-serving Prime Minister Shinzo Abe failed to accomplish despite the ambitious “Abenomics” through unlimited quantitative easing and stimuli programs.

Japan’s economic alliance with the United States has never been so strong. The two countries struck the Japan-U.S. Commercial and Industrial Partnership after a meeting last month of the U.S. secretary of commerce and the Japanese minister of economy, trade and industry. Under the partnership, the two countries vowed “strong alignment on approaches to creating a more resilient semiconductor ecosystem” and continue to “share information on support measures and incentives in both countries to identify and resolve geographic concentrations of production undermining semiconductor supply chain resilience.” Industrial experts translate the statement as a collaboration between the two countries to overtake Korea and Taiwan, which have been dominating the memory and chip foundry segments, respectively.

The developments are bad news for Korea and a boon for Japan. U.S. memory giant Micron Technology has pledged a multibillion-dollar investment in Japan to manufacture advanced chips there. IBM is partnering with Rapidus, a Japan-based chip firm backed by the Japanese government, to develop and produce powerful chips. The U.S., which sabotaged the Japanese chip industry through the chip agreement and the Plaza Accord to appreciate the Japanese yen in the late 1980s, is going all-out to help restore Japan’s chip supremacy.

But the population issue still remains a compelling challenge. Japan’s total fertility rate has hit a record low of 1.26. Tesla CEO Elon Musk last year feared that Japan could cease to exist unless it can push up its birth rate above the death rate.

Still, Japan is better off on demographic risks. South Korea’s total fertility rate last year was 0.78, the world’s lowest.

“Peak Japan” author Brad Glosserman warned that Japan is doomed if it cannot correct its habit of delaying changes, problem-solving, and reforms despite multiple shocks. He could give the same advice to Korea, a country more resistant to changes and reforms than Japan. Since Korea graduated from the bailout supervision by the International Monetary Fund in the late 1990s, it has never carried out a major national-level reform. Reforms in labor, pension and the public sector remain hanging. Regulatory, discriminatory and self-serving barriers are everywhere. While decent jobs are limited, high-cost structure from expensive housing and education remains fixated.

The young back away from getting married and having children. Political capabilities to solve conflicts are pitiful. Rivaling politicians are wrangling over Japan’s release of contaminated water from the crippled Fukushima nuclear plant as recklessly as during the mad cow disease scare in 2008.

A person commented on a JoongAng Ilbo article on Japan’s record-low birthrate. “They (Japan) are still better off than us. I don’t wish to get married. Everyone I know does not want to. Who would want to raise a child in this kind of society? No matter how hard we try, we are overrun by those with higher education or greater riches. It is hard just to sustain myself,” he posted.

The complaint is no exaggeration. When the young are dejected, society falls into a lethargic and low-growth slump. Japan is bottoming out, but Korea may be peaking out. Who is in greater danger?