Commentary by William Pesek
Feb. 11 (Bloomberg) -- NEC Corp. started a trend that will forever change Japan.
The nation’s largest personal-computer maker on Jan. 30 said it will fire more than 20,000 employees. That announcement would have been shocking enough had it not opened the floodgates. Since then, Panasonic Corp. said it will cut 15,000 jobs. Nissan Motor Co. is cutting 20,000.
Even during the darkest days of the 1990s -- deflation, bank failures, public bailouts -- companies avoided mass layoffs. NEC’s precedent seems to have made it fashionable to do just that. What’s next? Sony Corp. firing 50,000?
The psychological blow to Japan’s already skeptical consumers is sure to deepen the recession at a speed few thought remotely possible just two months ago.
“Japan’s recent economic decline is faster than that of the U.S., which has been experiencing the worst financial crisis in a century,” Kazuo Momma, head of research and statistics at the Bank of Japan, said in Tokyo on Feb. 9.
Momma said the world’s second-largest economy may have shrunk at an “unimaginable” speed last quarter. Gross domestic product fell at an annual 11.7 percent pace in the fourth quarter of 2008, according to the median estimate of 23 economists surveyed by Bloomberg News. That would be the steepest decline since 1974.
Like the Titanic
There would be only one way to describe such a figure: Wow! Remember Japan was supposed to avoid the worst of the global credit crisis. Its cash-rich banks were expected to help recapitalize Wall Street. Its companies were set to go on a merger-and-acquisitions tear.
Now, prospects for Japan are sinking like, well, the Titanic. That’s Yoshimi Watanabe’s word, not mine, but in some ways it’s an apt description of where Japan finds itself.
The former financial-services minister is referring to the ruling Liberal Democratic Party, and Prime Minister Taro Aso’s stubborn refusal to resign or call an election. Aso’s approval ratings are below 20 percent, and sinking.
“The LDP is like the Titanic heading into a huge iceberg that is the general election,” Watanabe told reporters in Tokyo on Feb. 9.
It’s the latest Titanic analogy to be applied to Japan. Many articulated the futility of Japan’s efforts to boost growth over the last 10 years as being akin to rearranging the deck chairs on an ill-fated ocean liner. Massive public-works spending and zero interest rates didn’t revitalize growth. It took an export boom to do it.
Change Needed
As Japan enters its worst slump since World War II, it does so with a dearth of leadership or fresh ideas. Whether you support them or not, U.S. President Barack Obama and Treasury Secretary Timothy Geithner see the world and economics differently than predecessors George W. Bush and Henry Paulson. Change is undoubtedly afoot in America.
Japan desperately needs a change of leadership with fresh ideas. Yet opposition leaders aren’t offering new policy direction for a nation in complete political drift. A few years ago, this gridlock wasn’t considered a problem. The recovery that began in 2002 convinced politicians that their job was done.
Efforts to trim the biggest public debt in the industrial world -- the Organization for Economic Cooperation and Development puts it at more than 170 percent of GDP -- never took off. Neither did plans to enhance national competitiveness, raise productivity, increase entrepreneurship or grapple with the mismatch of a rapidly aging population and a declining birthrate.
Exports Sputter
As a result, Japan’s growth in the 2000s didn’t fatten paychecks. As the key driver -- exports -- sputtered, its $4.4 trillion economy ground to a halt. Japan is left with dying trade prospects, sliding household spending and banks weighed down by the weak stock market.
And then there’s the yen. Toyota Motor Corp., the largest carmaker, said its loss this year may be three times earlier estimates as car sales in the U.S. and Japan plunge and the yen’s gains erode earnings. The yen’s 17 percent surge against the dollar and 18 percent jump against the euro in the last quarter of 2008 are hammering corporate Japan.
How bad things could get in Japan always requires perspective. About $15 trillion of household savings may be a cushion that economies as diverse as the U.S. and Indonesia don’t have. Japan’s government also has shown an aptitude for getting its 127 million people through slumps. Like the RMS Titanic in 1912, many see Japan as unsinkable.
Out of Work
Recent layoffs are sure to be followed by other huge job-cut announcements. Japan’s lifetime employment system is being replaced by more-flexible work contracts. This recession will be unprecedented in terms of how quickly workers find themselves jobless. Japan’s unemployment safety net is more patchwork than cohesive national strategy.
It’s not clear the government understands how bad things could get. Take Economic and Fiscal Policy Minister Kaoru Yosano, who on Feb. 8 said the economy was probably “pretty bad” last quarter. Pretty bad? Yosano may want to check with labor unions, which expect a spike in homelessness and suicide numbers as companies shed tens of thousands of workers.
Japan’s economy is taking on more water by the day. This is no time to rearrange deck chairs.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: William Pesek in Kuala Lumpur at wpesek@bloomberg.net
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