You are here

High debt. Low growth. Are we all Japanese now?

With Covid-19 destroying millions of jobs worldwide, some economists are considering whether the Japanese model is a template well-suited to current conditions

A Ricoh employee works on the production line at the company's printer components factory in Kanagawa prefecture. Thousands of companies in Japan were able to keep their doors open and employees on their books this year thanks to cheap loans and the jobs-for-life culture.


COCOONED in the mountains of Nagano, Japan, employees at Ina Food Industry Co. begin the day by tidying the garden around their office and factory buildings. The smell of freshly cut grass perfumes the summer air as loudspeakers pipe out the company song: "… surrounded by the green of pines, showered by the happiness of the morning sun, the gathering of our comrades… "

As usual, the company's patriarch, Hiroshi Tsukakoshi, who turns 83 in October, greets his employees, reinforcing the sense of community and security he's created over more than six decades of running the business while never cutting a single job. And he doesn't plan on doing so now, even as the Covid-19 pandemic causes the worst economic crisis since the Great Depression.

Mr Tsukakoshi has told his workforce of 500 or so that all their jobs are safe. Even though sales are forecast to be down about 15 per cent this year, he says, Ina Food's employees will still get modest annual raises and their traditional summer bonuses. "If a company grows in volatile fits and starts," he says, "people are increasingly gripped by fear and fret over when they will be fired. You have to maintain incremental growth to keep your people happy."

Ina Food, which produces a gelatinlike substance called agar from algae, represents a sepia-toned, somewhat idealised side of the world's third-biggest economy - one that offers a dose of optimism to a world that may be headed down a similar trajectory of high debt, endless stimulus, and anaemic growth.

Your feedback is important to us

Tell us what you think. Email us at

After 30 years of flat-lining, the country still boasts one of the developed world's best living standards and a jobless rate of just 2.9 per cent in July. "Japan is like a family that didn't go on vacation but built up a bank account," says former US Treasury Secretary Lawrence Summers, a paid contributor to Bloomberg TV. "The consequence is the family will be in a better place when Dad becomes unemployed."

In recent times, global policymakers had come to see Japan more as a cautionary tale than an economic role model. But as the pandemic destroyed tens of millions of jobs around the world, that view has shifted, with some economists considering whether the Japanese model is in fact a template well-suited to current conditions.

Amid the Covid-19 crisis, thousands of companies were able to keep their doors open and employees on their books this year - and over the past 30 years, for that matter - thanks to cheap loans and the lingering jobs-for-life culture.

Mr Summers says longtime critics should be "a little bit more humbled" as Japan's low-growth, low-interest-rate trend becomes a norm in Europe and the United States.

But there's another, grittier side to the Japan story. For almost every Japanese worker enjoying the kind of job security that's a distant memory in most other industrialised nations, there's somebody toiling in a low-paid role with no such protection.

Tatsumi, a 36-year-old single mother who asked to be identified by her family name only, is one such person. She lost a dishwashing job that paid 1,000 yen (S$12.89) an hour in June when the pandemic shut the restaurant where she worked in Hyogo in the centre of the country.

Former Prime Minister Shinzo Abe, who in mid-September resigned because of a worsening chronic medical condition, had touted a record female employment rate - 71 per cent for women age 15 to 64 in 2019 - as a key success of his economic policy as many women who were previously out of the workforce joined the rank of non-regular workers.

The crisis has revealed how shaky those gains were. The number of jobs held by non-regular workers fell by more than one million in the first half of the year, even as regular jobs rose by 450,000 because of companies sticking to their traditional practice of hiring new graduates in April.

Productivity and innovation in Japan have long lagged North-east Asian neighbours such as South Korea and China. A barrage of government spending programmes and decade after decade of monetary stimulus from Bank of Japan (BOJ) Governor Haruhiko Kuroda and his predecessors failed to create robust, sustainable growth, leaving Japan with the world's largest pile of public debt.

A key question now is this: Will Japan's economic strategy leave its businesses and households better positioned to drive a modest recovery once the virus is contained?

A distinctive characteristic of the Japanese economy is that, while the government has borrowed, its companies have done the opposite. Retained earnings at companies stood at 459 trillion yen at the end of June, or more than 90 per cent of gross domestic product. They're up 72 per cent since the fourth quarter of 2008.

A similar pattern can be seen globally. As the pandemic persists, governments are being pressured to boost the trillions of dollars of fiscal stimulus they've already doled out. US public debt is projected to surpass records set in the post-World War II years by 2023, while UK government debt rose above 100 per cent of GDP in May for the first time since 1963.

In Japan, where the debt-to-GDP ratio is already above 200 per cent, the government doesn't expect its budget to be balanced until at least the end of the current decade.

Until the early 1990s, Japan's economy was anything but dull. Its companies were busy buying trophy assets around the world, such as Pebble Beach Golf Links in California and Rockefeller Center in New York. Sony Walkmans and Toyotas epitomised its manufacturing mastery.

Then the entire economy started falling to pieces. In the meantime, Asian Tigers such as South Korea and China emerged. Now Japan, like just about every other country in the region, finds its supply chains deeply entwined with Chinese suppliers.

Cheap and abundant money from the BOJ means small lenders can keep credit lines to their borrowers open.

But just as in the Rust Belt areas of the US or Europe, Japanese manufacturers have been clobbered by cheap labour and production in China and elsewhere. The number of factories in Tokyo's Ota ward, for instance, has dwindled steadily from a peak of 5,120 in 1983.

While the endless drip of stimulus and an increase in support during the Covid-induced slump has kept struggling businesses afloat and prevented mass joblessness, the surviving companies may not be profitable in the long term, even in a post-pandemic world. What's more, these government safety nets just postpone the kind of structural reforms needed to boost productivity and economic growth as the country's workforce shrinks because of ageing.

That surge in fiscal spending has been supported by the central bank's unlimited bond buying, something echoed this year in Europe and the US along with most other advanced economies and some emerging ones.

Whatever the people in power do, Tatsumi, the single mother who lost her job as a dishwasher, wants them to do it fast. Mr Abe had announced economic stimulus packages worth more than 40 per cent of GDP, adding to the already massive debt burden.

On April 6, on the eve of the declaration of a state of emergency because of a rising number of Covid infections, Mr Abe said needy households like Tatsumi's would get 300,000 yen. Ten days later, he changed course, promising 100,000 yen per citizen regardless of income.

In April, when she was put on a furlough and told her three-month contract wouldn't be renewed, Tatsumi was one of about 4.2 million people who showed up in government labour statistics as not working even though they were still technically employed. Had they been counted as unemployed, the jobless rate would have been 11.5 per cent, not the official figure of 2.6 per cent in April.

During her furlough, Tatsumi's employer at the restaurant paid 60 per cent of her salary as required by law, but she still had to tap savings she'd set aside to pay for her two sons' higher education. She found a new job as a cook at a nursing facility for the elderly; if nothing else, she figures it's a safe job thanks to Japan's ageing population.

But it's another part-time job. At 950 yen an hour, it doesn't pay as well as her previous one, and she'll be working fewer hours. "I really feel I am not protected by Japan's system," she says. BLOOMBERG

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to