Glimpses of Japan's economic revival

By DANIEL SNEIDER
KNIGHT RIDDER NEWSPAPERS
TOKYO -- After more than a decade in the economic doldrums, is Japan back?
Economists and business people have been burned more than once by signs of recovery in the world's second largest economy -- only to see them evaporate.
"Every time you think there is a light at the end of the tunnel, it turns out to be a freight train," Robert "Skip" Orr, the head of Boeing's Japan operations and a veteran Japan-watcher, told me.
But Orr, like many other Japan-hands, is finding it hard to resist evidence of economic rebirth that hasn't been seen here since the infamous Japanese bubble popped in 1990. The economy grew at an annual rate of more than 6 percent in the last quarter of 2003 and it has continued to grow this year. Some economists predict the Japanese economy will expand by 4.5 percent in 2004.
I rely on slightly less scientific data -- the Yakitori index. That measures the density of traffic on a weekday night at my favorite yakitori (grilled chicken) joint in Tokyo's Roppongi district, a center of nightlife.
Back in the pre-1990 bubble days, blue-suited salarymen, along with British stock traders and hacks like me, lined up out the door for a seat at the counter. When I returned for a visit in the mid-1990s, my wife and I were the only customers. The salarymen on company expense accounts had disappeared.
Now the salarymen are back, laughing and drinking. And while it wasn't bubble levels, many were turned away at the door.
The mood in Tokyo is one of optimism, sans arrogance. Japanese no longer dream of sitting astride the globe, no longer talk trash about their American competitors. But there is a growing sense that a corner may have been turned in the long climb back from what seemed to be an endless recession.
There are some intriguing signs that this upturn is different from previous short-lived bursts of growth. For example:
UGrowth is taking place despite a slowdown in government spending, the tool used to stimulate past upturns.
UJapanese banks have made real progress in carving down their massive bulge of bad loans.
UMany Japanese corporations have quietly restructured, trimming payrolls, shifting production overseas and paying down debt.
UJapanese saving rates are declining as retirees and others show more willingness to spend their savings.
The optimism is tempered by the fact that Japan's recovery is overly dependent on growth in exports and by business investment to meet the demand from outside Japan, while the home economy is far less dynamic. Exports have supplied half of Japan's overall economic growth in the last two years.
Who is Japan selling its goods to? Not, as in the past, to the United States. Exports to America have actually fallen. Or to Europe. The big market is right next door in China, which last year sucked up 80 percent of the growth in exports.
Economists are looking for evidence that demand within Japan, particularly from consumers, is also ready to pick up. Household spending has begun to turn upward. But until growth moves out beyond the big companies in Tokyo to the small and medium-sized firms that have been the main source of jobs in Japan, that trend will not deepen.
Ultimately, the key is to continue real reform, both in companies and in the government. That means letting firms go bankrupt and increasing productivity throughout the economy. The movement of foreign investors into Japan has been an important catalyst for such changes. But there is still tremendous resistance to this from Japanese who believe that foreigners are only interested in making profits at the expense of jobs.
"There is a lot of reform fatigue inside Japanese companies," observes Richard Katz, editor of the Oriental Economist report and author of two books on Japan's economy. "There is enough reform going on that you can see what could happen. But it's going to take a while."
I am not foolish enough to predict a return to the Japan of old. But based on the Yakitori index, bolstered by wiser heads than mine, I am more confident today that Japan is ready to shed its role as the sick man of Asia.
X Daniel Sneider is foreign affairs columnist for the San Jose Mercury News. Distributed by Knight Ridder/Tribune Information Services.