With an ageing population and large public debt, will Japan ever become Number One again?

FT Asia Editor David Pilling speaks to Asia House’s Web Editor Naomi Canton about the mixed mood in Japan, the lost decades after the boom years of the 1980s and how the Japanese public are conscious of the great rising power next door – China.

Tell me about Bending Adversity: Japan and the Art of Survival (Penguin Press, January 2014) which you will be discussing when you come to Asia House.

My book is a portrait of contemporary Japan. It seeks to fill a gap that has been left as attention has shifted to China over the past 20 years.

There was a flurry of books that sought to “explain” Japan in the 1970s and 1980s, but there haven’t been many broad treatments of Japan aimed at the general reader since then.

As far as the publishing industry is concerned, in the 1980s, Japan was on the verge of becoming Number One – to paraphrase the title of Ezra Vogel’s famous book.

Since then, there has been virtual silence. So what happened?

My book aims to bring us up to date. In fact, a proposed title at one stage was Japan as Number Three.

In addition, Bending Adversity is also about Japan’s resilience and the way it has dealt with adversity, going back to the Meiji period and taking in its “economic miracle” after defeat in war and, more recently, its attempt to grapple with the burst of the bubble.

It also deals with the 2011 tsunami, since part of Japan’s self-image is that of a country “primed for adversity” in Pico Iyer’s lovely phrase to describe a nation constantly braced for seismic shifts and volcanic eruptions.

The book argues that Japan is more adaptive than is commonly acknowledged.

Japan’s leadership has got many things wrong in the past 20 years and the country faces huge problems, biggest among them its difficult demographics and its large public debt.

But Japan has shown itself to be extremely pragmatic. It is probably better placed to face these challenges than often acknowledged.

It is often claimed that Japanese work culture (team spirit, respect for authority, long working hours etc) played a major role in the post-war economic miracle in Japan. But is Japanese work culture and its counterpart lifetime employment now a hindrance in the post-financial crisis?

Yes, I think that Japan’s corporate culture was much better suited to Japan’s catch-up phase than to the needs of a mature economy – particularly one in a digital age.

The long hours and rigid corporate culture are not conducive to women building careers, a fact that virtually excludes half of Japan’s talent pool. Nor is corporate life suited to a modern workforce able to move across companies and disciplines and to cross-fertilise ideas.

In some ways, Japan’s labour market has transformed in the past 20 years.

Contrary to what is normally believed, it has been incredibly flexible.

Wages and the number of hours worked have moved up and down (often down) with economic activity.

This has helped keep unemployment low by international standards.

The dual market also means a larger and larger portion of the workforce – now approaching 40 per cent – is in the low-paid, casual sector.

This is disastrous for aggregate demand. Something needs to be done to improve the conditions of those working on the casual side of the divide and, to overhaul the “job-for-life” side so that it is more open and dynamic.

What is the mood pervading Japan now?  In the light of the so-called ‘Lost Two Decades’ and Fukushima, has Japan lost its sense of national purpose? Or is the 2020 Olympics returning a sense of optimism?

The mood is mixed. In one sense it is better since there is a sense that Japan is at last grappling with its two lost decades.

At the same time, there’s a feeling that the effects of Abenomics – inflation, if it works – could be damaging to people’s living standards. Few believe they have personally seen any benefit from the new economic policies. So it’s double-edged.

Fukushima was a big shock and has made many people nervous and less trusting of the government. When it comes to public mood, one cannot discount the rise of China and its more assertive attitude.

I think the Japanese are very conscious of the great rising power next door.

As for the Olympics, on the margins it may improve sentiment. But certainly until we get closer to the event, I think you have to be cautious about pinning too many hopes on a sporting event.

How are Japanese companies doing? Are they looking to invest/trade more or less in Asia?

Japanese companies, with the encouragement of the government, have been heavily investing in ASEAN countries, particularly Indonesia, Thailand and the Philippines.

There has been a marked uptick in outward M&A (mergers and acquisitions) as Japanese companies seek opportunities abroad.

My impression is that, though there will inevitably be some duds (e.g. Ranbaxy), Japanese companies may be getting better at choosing investment targets and running them efficiently.This is inevitable.

In some senses, Japan will increasingly become a “rentier” economy, living off its capital.

Much of this will have to be invested abroad where growth opportunities are greater.

Japan will need to ride Asia’s economic growth if it is to pull this off. That includes China. Japan cannot afford to  feel distant from Asia.

What is Japan doing to deal with the rapidly ageing population? Do you foresee reform in immigration laws to help boost the workforce? Is ‘womenomics’ attracting more Japanese women to the labour market?

These are big questions. I doubt whether there will be a radical change to Japan’s immigration policy, but there will be some at the margins.

In shops, restaurants and conbinis (small convenience stores) in Japan you can already notice more non-Japanese staff, many from China and other parts of Asia.

I think Japan will continue – and perhaps extend – this policy of “selective immigration”, which often relies on people breaking the law to extend their stay. Japan needs to make it easier for people to stay legally.

My guess is that it will do so for “professionals” and also for health workers, carers and perhaps for nannies – a change that would make it more feasible for professional women to have children and also work.

Japan’s female participation rate is not as low as often assumed, some 61 per cent versus 62 in the US and 66 in the UK.

To succeed, ‘womenomics’ would not only have to make it easier for women to return to work more quickly after childbirth.

That would make a percentage point or two difference and would probably not budge the needle.

The real challenge is to enable women to have careers on a par with men, to unleash the dynamism of the female workforce and to shake Japan up a bit. That would mean new laws, lawsuits, possibly quotas, and big cultural shifts. I’m not holding my breath.

Japan is renowned for its wacky trends. Can you share a recent popular culture trend in Japan?

I’m not really sure. I went to a restaurant in Daikanyama recently that was jam packed with mothers and babies.

The whole experience was geared for babies, with tables made of soft cushioning and a baby-friendly staff.

Of course, being in Daikanyama, it also managed to be super trendy and, being in Japan, naturally served excellent food.

A visitor from Mars would have assumed that Japan was one of the most fecund countries on earth.

Perhaps, there really is an attempt – by the private sector as well as the slow-moving government — to make it more attractive for couples to have babies.

‘Bending Adversity: Japan and the Art of Survival’

In part two of his interview David Pilling shares his views on India and China. The story will go up on this website soon.

David Pilling is the Asia Editor of the Financial Times in charge of the whole of Asia from Afghanistan to India and Japan and China to Australia. He was Tokyo Bureau Chief from 2002-2008. Currently based in Hong Kong, his column explores business, investment, politics and economics.