Throughout 2016, economists have been asking if Japan’s shocking decision to introduce negative interest rates has been beneficial.
In January the Bank of Japan adopted its negative interest-rate policy, which in effect penalises banks for hoarding too much money.
This dramatic and unconventional move was part of the Bank’s plan to support Abenomics, the programme devised by Prime Minister Shinzo Abe to stimulate the economy.
The negative interest rate policy seemed like a desperate measure and it came in for a lot of criticism.
The goal was two-fold: firstly, to encourage the banks to lend more money to their customers, especially to small and medium sized business. And secondly, to produce a more normal rate of inflation: the target inflation rate is two percent.
Has it worked?
Kwok Chern-Yeh, head of Japanese equities at Aberdeen Asset Management, told the website FT Advisor that it does not seem to have been successful in increasing lending. “Instead, the Bank of Japan’s move simply hurt banks as their lending spreads narrowed,” he said.
When it comes to inflation, the actions of the central bank appear to have had little measurable benefit.
As the Japan Times points out, Japan’s core consumer price index, excluding volatile fresh food prices, fell for the seventh straight month in September, down 0.5 percent from a year earlier.
This led to something resembling an apology from the governor of the Bank of Japan, Haruhiko Kuroda.
“It is regrettable that we were not able to realise two percent inflation within two years,” Mr Kuroda told a news conference at the start of this month.
So has Abenomics fizzled out?
That was a question posed on the website of East Asian Forum. They approached the respected economics professor Kazuo Ueda from the University of Tokyo. His conclusion is that “after more than three years of Abenomics, it is almost an acknowledgement that the stimulus so far has failed to work.”
However, Professor Ueda holds some optimism. “In the near term,” he says, “a more solid expansion in the global economy, especially in the United States and Asia, would relieve pressure on the yen and the Bank of Japan. In the medium term, a two per cent inflation rate, if achieved, could animate business spirits and trigger a substantial rise in investment and growth. But for now we will just have to wait and see.”
Japan’s Prime Minister Shinzo Abe has become the first foreign leader to meet President elect Donald Trump. They held a 90-minute conversation at Trump Tower in New York.
Mr Abe said he has great confidence in Mr Trump. He described their talk as candid and with a warm atmosphere.
There was very little information disclosed to the press about what they spoke about, which led to the media speculating on what subjects would have been important to them.
One of the main ones would have been the US military presence in Japan. There are around 50,000 American soldiers based in Japan. Many of them are stationed in Okinawa, where local people have often complained about their presence.
However, Mr Abe has supported Japan’s defence alliance with the US and has sought to maintain a good relationship with President Obama.
During the election campaign, Mr Trump challenged the amount of money the US spends on its military presence in Asia. He has even floated the idea that Japan and South Korea should develop their own nuclear weapons to counter the threat from North Korean missiles.
Speaking after the meeting, Mr Abe said: “I believe that without confidence between the two nations the alliance would never function in the future and as the outcome of today’s discussion I am convinced Mr Trump is a leader in whom I can have great confidence.”
Another subject which may have been on the agenda for the meeting was the Trans Pacific Partnership, known as TPP. This is designed to create a free trade area involving both Japan and the United States and Mr Abe’s been strongly backing it, despite some political opposition within his own party.
In the election campaign, Mr Trump said he would scrap TPP and Hilary Clinton also cast doubt upon the deal. In essence, Mr Trump believes that such trade deals threaten the jobs of American manufacturing workers by opening them up to competition from countries where wages are lower. For this reason, he also threatened tariffs on manufactured imports, such as Japanese cars.
However, most of the Japanese cars which are sold in the United States are actually manufactured there and Toyota has invested heavily in its US factories and its American staff.
Michael Pillsbury who has been advising Mr Trump on Foreign Policy told PBS Newshour that Mr Abe’s meeting with Mr Trump was due to the initiative of Japan and the leaders of India and other countries could be jealous that he was the first in the line. Mr Pillsbury also praised Mr Trump for taking the opportunity to “educate himself” about other countries.
The editor of Foreign Policy magazine Donald Rothkopf told the same programme that everything Mr Trump does or says is being watched carefully and everything has a consequence for America’s relations with the rest of the world.
Most Japanese men expect to gain more money and status the longer they stay with their company. By the time they reach their forties or fifties, they expect to become managers and earn considerably more than they did when they joined their company in their twenties.
That was the system which was common throughout corporate Japan during its rapid growth period from the 1960s until the 1980s. Yet this seniority based-management culture is being challenged. One of its critics is Professor Seijiro Takeshita from Shizuoka University who complains that it creates “stagnation” within Japanese corporate culture. He wants the seniority based-management culture to be replaced with a meritocracy-based system and a fresh approach towards promotion.
“We need to reward people for taking risks,” said Professor Takeshita, “and not punish them for failure.”
Professor Takeshita and other critics claim that older, long-serving employees are unlikely to embrace change and seek new opportunities. He argues that this corporate conservatism is likely to become stronger as Japan’s working population grows older but says it is not a good characteristic to have when Japan is competing against other more youthful Asian countries for business.
Another issue with is that the high rates of pay rarely go to people who have young children. Yet it is families with young children who may require the most financial support. One of the big challenges for Japan is how to create an environment in which more people are prepared to have children and offset the falling birth rate.
One radical suggestion for encouraging people to start families has been put forward by Kaori Sasaki, the founder and chief executive of ewoman, who said that companies should offer “automatic promotions” to men who take paternity leave in order to look after young children. “Men do not take paternity leave because they fear their careers will suffer. If we promote those that do, then the circumstances will change,” she said.
Although the idea has appeal, it is hard to imagine that it would ever be implemented by any Japanese corporation. Rather more importantly, women who want to take maternity leave need assurances that their careers will not suffer as a result of having children and also that they will be able to access child care when they need it so that they continue working and raising a family at the same time.