Posted by: Kenji Hall on April 24, 2009
With the global economy now in a deep funk Japan’s export machine is idling. The latest evidence came this week, when Japan reported a trade deficit of 725.3 billion yen ($7.3 billion)—the first such shortfall in 28 years. The announcement was a stark reminder of how dependent the world’s second-largest economy was on the buying habits of companies and consumers overseas.
That has spurred a lively debate in recent months about the need to reshape Japan’s industries. The government’s Council on Economic and Fiscal Policy has made the discussion a top priority in the past month. But where and how to start remains a sticking point.
Tokyo could have used the latest stimulus package of public spending and tax cuts to spur a remodeling of industries. Instead it opted to spend a lot on public works, such as extending airport runways, building new train lines and subsidizing urban development. Economists I’ve spoken to were disappointed.
Even so, the CEFP may soon recommend a policy that helps companies for developing green technologies—electric cars, smart electricity grids, solar panels, and energy-saving appliances and portable gizmos that cut back on greenhouse gas emissions blamed for global warming. That would give companies the incentive to bet aggressively on nascent green technologies that they might otherwise be reluctant to channel resources to just yet. It could also lead to a new phase of factory building to replace some of the plants that Sony, Toyota, Toshiba, Panasonic have moved overseas.
That’s not to say that there has been a so-called hollowing out.
To be sure, the country’s biggest companies have been shifting production facilities overseas to offset the effects of currency swings on their earnings. It’s been happening for years, say economists and industry experts. But companies continue to develop and manufacture their core technologies—NAND memory chips, flat liquid-crystal-display panels and hybrid gas-electric cars—at home, says NLI Research Institute analyst Toru Hyakushima.
How dependent was Japan on overseas markets for its growth? For six years exports soared. They grew 75%, from 48.6 trillion yen in the fiscal year through March 2002 to 85 trillion yen in the year through March 2008. Japan’s factories were working at full tilt churning out chips, TVs, cars and chemicals, and exports were helping to haul the domestic economy out of its long recession. Then the financial crisis hit and the recession set in: In the latest year through March 2009, exports slipped 16.4% to 71 trillion yen.