This Time, Japan’s Gloom Runs Deeper

TRADERS here are fond of joking that no one has lost money betting against Japan since the collapse of the bubble economy of the 1980s.

More than two decades later, the Nikkei 225 stock index is still three-quarters off of its peak. And the economy has been hit by blow after blow, from sagging property prices to mounting debts and intensifying competition from China.

Add an aging population, a lack of jobs for college graduates and persistent deflation and you can see why Japan’s so-called lost decade is a misnomer. Japan has lost decades — plural, not singular.

Natural disasters could be added to the list of economic shocks, notably the earthquake that leveled Kobe in 1995, and, in March, the earthquake and tsunami in northeastern Japan and the nuclear crisis in Fukushima that followed.

In a perverse way, after suppressing growth initially, Japan’s catastrophes have repeatedly jump-started the economy. But such good times generally have not lasted. Japan’s economy rebounded in late 1995 and 1996, for example, before tax increases and the Asian financial crisis plunged the country back into recession, a roller-coaster ride that I covered as a reporter here.

Four months since the triple disasters, there are early signs of another rebound. Carmakers are resuming production, gasoline shortages have disappeared and roads and homes are being rebuilt. Many economists say they expect a “V-shaped” recovery; indeed, the Nikkei 225 index has risen 18 percent since March 15, four days after the earthquake.

But since I returned to Japan in March, it has seemed that the impact of these disasters is far more profound than that of the 1990s quake — a difference that investors in Japan-related mutual funds may want to consider. As a whole, Japan stock funds gained 2.4 percent in the second quarter, and more than 15 percent over the last 12 months, according to Morningstar. Those numbers aren’t bad at all — but the recovery clearly has much further to go.

While the damaged reactors provided electricity to the Tokyo region, fears about the safety of the nuclear industry have led to the shutting of many other reactors, prompting utilities across Japan to ask customers — including the largest manufacturers — to use less electricity. If the reactors are not restarted, shortages could persist into next year.

“This story isn’t over like the Kobe earthquake,” said R. Taggart Murphy, who teaches in the M.B.A. program in international business at the Tokyo campus of the University of Tsukuba. “Once you get inside and see the short-term consequences, things will be pretty bad. You can’t replace that power right away.”

The size and scope of the current disaster are also much larger than those of the Kobe earthquake. The costs to rebuild Tohoku — the northeast region hardest hit by the quake — and to clean up Fukushima are expected to be so large that lawmakers are planning to double the national sales tax, to 10 percent, a move that might send the economy into a tailspin.

Having lived here for a dozen years, I am accustomed to hearing gloomy predictions. Some specialists have predicted that Japan’s economy will be swallowed by China’s. Others say Japan is the next Switzerland, a stable country with a shrinking role in the global economy. For a while, it was even in vogue to compare Japan to Zimbabwe, another country with a large debt burden.

THESE analogies all exaggerate conditions here to one degree or another. But, for the moment, the clouds that hover over the country seem even darker than usual, and the silver lining is harder to find because of the effects of the triple disasters.

Government estimates peg the reconstruction costs at as much as 25 trillion yen ($312 billion), a figure that private specialists say is conservative. Japanese investors buy a vast majority of government bonds, so lawmakers do not have to worry about a Greek-style financing crisis set off by the fears of foreign bondholders.

Nonetheless, relying mainly on debt financing would add to fiscal risks stemming from an already high level of public debt, which at more than 220 percent of gross domestic product in gross terms is the highest among advanced economies. Japan will face mounting pressure to cut spending and raise taxes to keep interest payments from overwhelming its budget.

Optimists note that Japan still has an ample trade surplus and foreign-exchange reserves, and a high savings rate that can be harnessed to pay for the transformation of the economy into, say, a leader in renewable energy.

Article source: http://feeds.nytimes.com/click.phdo?i=578a2e0d49d67f921a100852099b43e1