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.
The boss of one of Japan’s major businesses has warned about the consequences of a so-called hard Brexit as Britain leaves the European Union.
Carlos Ghosn, the CEO of the car-manufacturer Nissan, said his company would need compensation for tariffs which could result from the change.
It was suggested by a BBC reporter that the tariff on cars exported from Britain to Europe could be ten percent.
Mr Ghosn responded by saying that would “without any doubt” have a harmful impact on Nissan’s factory in Sunderland.
Such high tariffs would also be a problem for all the Japanese companies which have manufacturing facilities in the UK.
Some of them might move their factories to other parts of Europe, as Japan Tobacco did several years ago.
However, the post-Brexit tariff of ten percent tariff which was suggested in the BBC interview was only speculation. It is not known at what level the tariffs will be set, as the negotiation process has not yet started.
Like the Japanese companies based in the UK, the British government wants any tariffs to be as low as possible. However, the level will be set not by Britain but by the European Union.
This week, I attended a meeting about the Brexit, along with about two hundred Japanese business people at the Japanese Embassy in London. We heard a speech by the British Trade Minister Lord Price.
He said that the UK government’s goal is a smooth transition to life outside the EU, with low tariffs and continued trade with Europe.
He also said the UK government is supportive of Japan reaching a free trade deal with the European Union.
When asked about the so-called hard Brexit, Lord Price said: “I think it’s just a phrase designed to illustrate an extreme point of view.”
Yet he also said there are a range of views within the government about how the Brexit should work. On immigration, for example, ministers have various opinions.
That is a concern for Japanese companies in the UK, who want consistency on immigration law and access to well-qualified, international staff.
Lord Price said that Japan is the largest Asian investor in the UK, and its investment in Britain is higher than that of China.
I asked him if there’s been a shift in the UK government relationship with China and Japan since Theresa May became Prime Minister. He denied this.
He also said he is looking forward to holding talks with Japanese business leaders in Tokyo later this month.
Does Japan really have a deeply embedded gender bias?
That was the claim in the headline over an opinion piece about politics in the Japan Times by a foreign, male professor from a law school in Kyoto.
Gender was also discussed in a report about attitudes to sex and, quite separately, in the context of a puzzling TV advert in which a woman turns into an eel.
Foreigners are generally curious about the nature of relationships in Japan. In the media, journalists tend to highlight complaints of sexism or “a deeply engendered gender bias”. However, these views are less common within the Japanese press.
In his piece of the Japan Times, Professor Colin Jones discussed Renho, the leader of the Opposition. Her father is Taiwanese and her mother is Japanese. This led to a debate over whether she could stand for parliament. Professor Jones believes it would not have been an issue if Renho had a Japanese father. He says Renho’s case “thus offers a stark illustration of the deeply rooted structural impediments faced by women in Japan even today.”
In fact, the controversy appears to have been settled and Renho now attracts a lot of respect as Japan’s first female leader of the opposition. Of course, the hard won success of prominent female leaders does not indicate that gender discrimination has vanished but it partly explains why gender is such an issue for the media.
Away from politics, there was widespread interest in a story which showed Japanese young men in a rather negative way. The sex survey claimed that about 40% of young single men and women have never had sex – a phenomenon that is being blamed for the low birth rate in Japan.
The Guardian reminded its readers that the study is one of several in recent years that portray Japan as a country with a collective loss of interest in sex. It was the theme of a prurient 2013 BBC documentary No Sex, Please, We’re Japanese.
But the Guardian suggested such claims are exaggerated and misleading.
Another story which was shared on social media was about a TV advertisement in which a Japanese girl turns into an eel. This ad was designed to promote ethical farming.
Many websites claimed – without much evidence – that it was “withdrawn for being sexist”. Yet the community which discussed it on Japan Today generally felt that it was unlikely to have been seen as sexist by its Japanese viewers. Many of them found it rather charming.
That would have been a suitable headline over an opinion piece in the Japan Times concerning economic and monetary and policy.
The newspaper said “excessive debt is always a concern” but it went on to encourage more government borrowing. “It makes no sense not to borrow when interest rates are this low,” it said. “Central bankers have done their part, it’s up to politicians to do theirs.”
The paper was responding to this week’s monetary policy meeting of the Bank of Japan. There was no headline-grabbing change to come out of the meeting. But the international media concluded the most significant point is that the Bank plans to keep its key interest rate in negative territory at -0.1%, for the time being. In addition to keeping short-term rates at -0.1%, the bank said it will also keep long-term rates, specifically the yield on ten-year government bonds, at about zero for the foreseeable future.
In its analysis, the Economist said the BOJ policies have “not only lowered interest rates, they have also flattened them.”
The Bank of Japan’s goal is to create an environment in which inflation can climb to two percent. It will therefore continue its costly QE programme through its purchase of government bonds. As I explained in last week’s blog, the bank has a serious credibility problem unless its goal is achieved.
The Bank of Japan’s policies are similar to those of the European Central Bank, which also has super-low rates and a QE programme. By contrast, the United States Federal Reserve is ready to raise rates. It had hoped to do so earlier this year but held back because of several factors, including uncertainty over the outcome of the US election.
Andrew Wilson, the CEO of Goldman Sachs Global Asset Management told the BBC: “I think this potential rate cut by the US Federal Reserve is well discounted by the markets. Other central banks are going in the opposite direction, so I don’t think it will have a broad global impact.
“At the same time as the Fed is moving interest rates up, the amount of liquidity created by the Bank of Japan and the European Central Bank will, we think, keep global interest rates at a relatively low level for a prolonged period.”
Although the Bank of Japan’s goal of reaching, or even surpassing, the two percent inflation target seems implausibly ambitious, it is hard to imagine that things could have been better had it done nothing.
The Bank of Japan has a crisis of credibility, according to the Financial Times.
The tactics it is using to try to invigorate Japan’s economy are not yet working and it has made a promise which seems impossible to meet.
For that reason, trust in the Bank and its governor Haruhiko Kuroda is undermined both within Japan and abroad.
The promise the Bank has made is to raise Japan’s inflation rate to two percent “within a couple of years.” A former policy maker at the bank, Sayuri Shirai, has pointed out that Japan has not had inflation rate that high for more than two decades. She believes it is time to cut the inflation target to one percent.
The methods by which the Bank of Japan is trying to create inflation include a negative basic interest rate of -0.1%. This effectively charges banks money to keep their cash in the system and is designed to prompt them into lending more to consumers and businesses. However, Forbes Asia claims the policy discourages lending.
There is speculation that the negative interest could soon be increased from -0.1% percent to -0.2%. An announcement is due following the Bank’s policy meeting on September 21st.
The negative interest rate is unwelcome for savers who have put their money into the banks, many of whom are old people. Japan has one of the highest savings rates in the world.
The negative rate is not the most expensive of the Bank of Japan’s policies. It is currently buying ¥80 trillion ($780 billion) worth of Japanese government bonds a year.
This policy, sometimes known as quantitative easing, is designed to flood money into the system; “printing money” is the way journalists sometimes refer to it. Yet it adds to the mountain of debt the government must face in the future. It also interrupts the system by which the government uses banks to fund its borrowing.
For most people, huge numbers and jargon make it difficult to grasp complex monetary policy. Yet everyone can see the targets of higher inflation and sustained economic growth are not yet being met.
This undermines credibility of the Japanese Prime Minister Shinzo Abe who is working closely with the Bank of Japan.
If people lose trust in both the government and the central bank it creates an environment of cynicism. Of course, Japan is not the only country to struggle to respond to the economic disruption following the 2008 financial crisis.
Yet other countries will not wish to copy Japan’s policies if they leave a trail of broken promises and distrust.
The North Korean leader Kim Jong Un has called on his army to press ahead with its nuclear weapons programme. His statement came after North Korea fired three ballistic missiles into the Sea of Japan this week.
Japan’s prime minister Shinzo Abe called the missile launch “an act of indescribable violence.”
North Korea tested a nuclear device earlier this year and it now aims to miniaturise nuclear weapons so that they can be attached to missiles, according to Professor Kihl-Jae Ryoo from the University of North Korean Studies in Seoul.
He was the minister for Unification for South Korea between 2013 and 2015.
Professor Ryoo was speaking on the record at Chatham House in London this week. He described the current situation as “explosive” and said that Kim Jong Un is “like a child playing with fire that could ignite at any time.”
He said that the threats from North Korea are now as strong as they were at the height of the Cold War. He said Kim Jung Un’s goal is to consolidate his power and to differentiate his leadership from that his father, Kim Jong-Il who died in 2011.
Professor Ryoo said that while he supported UN sanctions, North Korea has endured sanctions for many years without much impact on its regime.
The professor added that although there is some evidence that the economic situation is improving around Pyongyang, rural parts of the country remain in poverty and require humanitarian aid.
I asked Professor Ryoo if he believes a consistent message about North Korea is coming from Japan, South Korea and China. He replied that although the three countries are in broad agreement their perspectives are different, particularly because Japan and South Korea are US allies.
He urged Japan to adopt a missile defence system to protect itself from attack.
Professor Ryoo gave two scenarios in which the leadership of North Korea could change. One was “through an assassination or a coup d’etat”, although he added “I don’t think that is very likely.”
The other scenario is that North Korea becomes more open and its citizens are able to compare themselves to people in other countries. This might foster the start of a market-orientated economy which could lead to the gradual collapse of the present system. However, he added that “I don’t think that is happening at the moment.”
He repeated his wish to see the two Koreas reunite and contribute to the peace and prosperity of the Asian region but he said that such a goal seems a long way off.
The leaders of Japan and South Korea held talks this week in Seoul, during which they condemned the missile launches by North Korea. They also reported progress over an issue which has divided them in the past – the so-called “comfort women” form Korea used by Japanese soldiers in the war.
When Japan’s Prime Minister Shinzo Abe dressed up as Super Mario and popped out of a pipe at the end of the Olympic Games ceremony in Brazil he was sending a couple of important messages.
Firstly, he wanted to show that he is a fun, friendly person and not an scary nationalist, as he is often portrayed in the Chinese and South Korean media.
Secondly, he wanted to reinforce his image as a super salesman for Japan and a tireless supporter of its business.
Mr Abe’s Mario costume fell away almost the instant he appeared, leaving him standing in a sober suit.
Shinzo Abe has a vision of a prosperous Japan at the heart of global trade. He vigorously advocated Japan’s membership of the Trans-Pacific Partnership, to the delight of big business.
Yet Prime Minister Abe’s commitment to the TPP project caused dismay among people who expected him to be conservative and protectionist. Mr Abe’s opponents accused him of betraying them through a push towards globalisation. Farmers feared the deal would take away their livelihood by tearing down their protection from foreign competition.
Japan continues to seek free trade deals with the European Union and with China and South Korea. In those two countries, another aspect of Mr Abe’s vision – for Japan to play a greater role in global political affairs – sometimes causes unease. Of particular sensitivity is the suggestion that Mr Abe plans to reform the pacifist cause of Japan’s constitution to enable its forces to fight abroad.
Mr Abe himself has warned against “naked nationalism” and the label of nationalist seems somewhat at odds with his globalised world view. However, what matters a great deal in terms of trade is Japan’s image. Japanese corporate success depends on its companies’ ability to provide consumers with goods and services without any disruptions caused by politics.
The best approach is a modest one such as that taken by the Mitsubishi Corporation at Andhra University in India. Its Japanese cultural centre offers students green tea and lessons in the the gentle art of origami. In such a context, promoting Japan is about showing a friendly face to its neighbours. And perhaps inviting them to a session on the Nintendo 64 for a game of Super Mario.