Learning from Japan on the starting line
Published: 04 Apr. 2024, 19:51

Kim Dong-ho
The author is the editor ofeconomic news at the JoongAng Ilbo.
The Japanese economy is ready for a leap again after escaping from negative interest rates that have long been a drag on the economy. Negative rates are a failed policy. Japan hoped to revive its economy by releasing unlimited money to stimulate investment and consumption, but it actually pushed itself into the swamp of its “lost 30 years.”
The Bank of Japan officially declared the end of negative interest rates on March 19, eight years after their introduction. Those policies distorted the Japanese economy and left only adverse side effects. Interest income could not be earned, household debts were inflated, and zombie companies could extend their lives. A grand experiment of reviving the economy by unleashing liquidity without improving productivity has ended in failure. The experiment was led by former Japanese Prime Minister Shinzo Abe in the name of Abenomics.
Starting in 2013, Abenomics shot three arrows: fiscal expansion, monetary easing and growth policy. Among them, fiscal expansion and monetary easing certainly failed. The biggest side effect of negative interest rates was “contraction-oriented” psychology. Japanese companies have hardly raised pay over the past 30 years, and as a result, the Korea’s wages surpassed those of Japan as of 2022. For more than 10 years, Japanese prime ministers have asked companies to raise wages whenever they meet them. But no company complied with the demand. Unlike Korea, Japan does not have a strong tradition of politicians giving orders to companies or regulating them endlessly. Politicians have repeatedly asked companies to lift wages, but they couldn’t, as they were in a low-growth mode.
The “third arrow,” or growth policy, is different. What drove the Japanese economy out of the bottom was growth policy. The Nikkei index — which had plunged to the 7,000-level shortly after the collapse of the bubble economy — jumped to 41,000 recently thanks to Abenomics. The drastic drop in the value of the Japanese yen played a part, but foreign funds wouldn’t have come if Japan Inc.’s performance was bad. In fact, Japanese companies’ profit increased 13 percent on year in the first quarter, and forecasts of their future performance are also positive. A shortage of workforce represents the growth policy’ success.
The corporate value-up movement, which began in earnest three years ago, is a case in point. The operations of the Tokyo Stock Exchange completely changed. The stock market differentiated growth stocks, value stocks and startups. As a result, those that didn’t meet its strict standards could not survive. Since April 2023, companies with a low price-to-book ratio (PBR) have been pressured not to stay in the stock market. Firms have been forced to raise their share prices by buying treasury stocks, raising dividends or recruiting board members. The Japanese stock market surpassed its highest point during the bubble, and the market capitalization of Toyota exceeded 50 trillion yen ($329.7 billion).
Japan has also proactively responded to the low birthrate and aging population. It employed more foreign workers and drastically raised the employment rate of women. The New York Times recently cited a study by the Peterson International Institute of Economics indicating that Japan’s utilization of the female workforce has significant implications for other developed economies. Japan wanted to increase its working female population by 800,000 but ended up with 3 million. Goldman Sachs expects Japan’s GDP to grow by up to 15 percent if female employees work longer hours.
Japan was lucky, too. The government wanted to raise wages to escape deflation. In the end, two of the three arrows of Abenomics missed the target, but “structural reform” was a home run. Actually, Japan’s growth rate did not increase significantly under Abe. Last year, even Germany overtook the Japanese economy in size.
But Japan is clearly re-energizing. The case of its economy should be a lesson for Korea. It’s been a long time since Koreans agreed that their country had nothing to learn from Japan. They were quite hubristic when the Korean wave swept the world, and Korean semiconductors dominated the global market.
It is time to be humble again. We must learn from Japan’s escape of negative interest rates and its response to labor shortage in order to achieve a success in the value-up program.
with the Korea JoongAng Daily
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