Japan Brief/FPCJ, No. 0943
July 31, 2009


White Paper Says Japan’s Economy Has Hit Bottom,
But Unemployment Remains Major Risk

In-house unemployment—meaning workers who are virtually redundant but whose companies somehow retain them on their payrolls—accounts for as many as an estimated 6 million people in Japan, an ominous sign that unemployment could rise sharply in the future, posing a great downside risk for the economy. This was among the findings of the fiscal 2009 edition of the government’s Annual Report on the Japanese Economy and Public Finance released on July 24. At the same time, the report declared that the domestic economy hit the bottom in the spring of this year after months of sharp downturn.

The white paper, the most closely watched annual official document on the state of the Japanese economy, describes the government’s diagnosis of problems and supposedly provides prescriptions for them. Understandably enough, this year’s edition focused on the plunge of the Japanese economy of an unprecedented magnitude that took place in late 2008 through early 2009. It ascribed the plight to Japan’s disproportionately heavy reliance on overseas sales of automobiles and information technology products, for which markets experienced a sudden worldwide collapse. An additional blow, it said, was the steep rise in the yen since last autumn, which dented exporters’ profits in yen terms. This in turn pushed up unemployment and led to a stagnation in household expenditure.

The white paper emphasized, however, that “moves toward a turnaround had appeared” since spring. As proof, it cited progress in inventory reduction and a pickup in exports of chemical products, among other things, to China. Given the weakness of domestic demand, it might be inevitable for Japan to continue to look to foreign markets, those of emerging economies in particular, as an engine for economic recovery for the time being. The white paper at the same time pointed to the desirability of a “twin-engine” recovery driven by both external and domestic demand, and especially personal consumption.

As three major downside risks facing the Japanese economy, the report cited a rise in unemployment, a return of deflation from a deficiency in demand relative to supply, and a prolongation of the vicious circle of continuous crisis in the US and European banking industries and its fallout on broader economies.

In this connection the document devoted one of its three chapters to the issue of “employment/social security and household spending behavior,” supposed to be a key to long-term recovery and the sustainable growth of the Japanese economy. It first of all made an issue of the recent rapid increase in temporary (nonregular) employees, who now account for one-third of the nation’s workforce. The increase in nonregular temporary workers has been considered to be the cause of broadening economic and social inequality, because their average annual income is less than 3 million yen in most cases, about half of that of regular workers, according to various data. Regular workers’ life-time income is 2.5 times that of nonregulars, the white paper said. It is not only the low level of income but also uncertainty about the future that makes these temporary workers hoard money in accounts, a factor that keeps personal consumption in the doldrums.

The white paper did not directly blame the increase in temporary workers for the broadening of inequality, however. It suggested that the rise in unemployment and the graying of the Japanese population have been the two major culprits. This argument was questioned by Professor Takashi Oshio of Hitotsubashi University, though, who said that there was a gap between it and the perception of the public and called for further explanation (The Nikkei, July 24, evening edition).

In accordance with its argument, in the white paper the government attached most importance to maintaining employment through job creation. This means that economic recovery is mandatory for closing the gap. The white paper also acknowledged that people’s apprehensions about old age and distrust of the future of the pension system are working to keep savings higher than otherwise; it went on to say that enhancing popular confidence in the public pension system is one way to redress excessive saving and encourage personal consumption.

Major Newspaper Editorials

The white paper’s diagnosis of the problems in the Japanese economy was generally accepted in media commentaries. But they criticized the government for failing to provide specific enough prescriptions to achieve growth—a sustainable one—that will create jobs and put people’s minds at rest.

The Yomiuri Shimbun said in its July 25 editorial, “The white paper called on the government to jump-start economic recovery by a two-track policy of domestic and foreign demand. We do not object to the proposal. Yet, it should be remembered that domestic demand was weak even during the economic expansion that lasted nearly seven years from 2002. Given that, the paper should have spelled out how domestic demand could be promoted in the middle of an employment crisis.” It went on, “The white paper also said shoring up the credibility of pension and other social security services will make people less likely to squirrel away excess savings, and this would flow on to support consumption. This is a good viewpoint, but to our regret, the argument is not overly convincing because it failed to explain where the fiscal resources to realize such proposals would come from.”

The Mainichi Shimbun questioned whether simply emphasizing growth would provide a solution to the problems. Its July 29 editorial argued that “mere growth will not reassure.” It commented, “The white paper estimates in-house redundancy at 6.07 million people in January-March 2009. But the problems won’t evaporate even if the growth rate is boosted.” The Mainichi stressed, “Achieving a secure society requires a bold employment policy and a radical reform of the medical system.” It added, “With regard to expanding inequality, a bold implementation of income redistribution will be unavoidable.”

The Nikkei expressed concern in its July 25 editorial about “approaching steps of employment adjustment.” It observed, “With joblessness in the United States and Europe surging closer to 10%, Japan’s rose in May to 5.2%, approaching the past record of 5.5%. It is only natural that firms do their best to maintain employment, but there is a limit to what they can do. The government must continue to provide assistance for job maintenance and implement policies to promote industry that will create new employment.”

(Copyright 2009 Foreign Press Center, Japan)
*Japan Brief is an original production of the Foreign Press Center, Japan, and does not represent the views of the Government of Japan or of any other body.


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