Last year, Japan recorded a real GDP (gross domestic product) growth rate of 1.9%. This is higher than Korea, which recorded 1.4%, and surpassed Korea in annual economic growth for the first time in 25 years. The Nikkei stock index also exceeded its highest point of 42,000 points last July, breaking its all-time high in 34 years. Japan is finally coming out of a long recession that lasted 30 years since 1990.
Unlike the Japanese economy, which is slowly recovering, the Korean economy has recently been struggling. It is facing several pressures, including a falling economic growth rate, a real estate bubble, the world’s fourth-highest household debt-to-GDP ratio, and pressures from aging and population decline. Some even warn that this may be reminiscent of the beginning of Japan’s ‘lost 30 years’.
Panoramic view of Tokyo city. Segye Ilbo file photo
What should be done to restore the Korean economy, which is showing signs of instability? Are there no lessons or lessons to be learned from Japan, which experienced 30 lost years?
The author, who worked at the Bank of Japan for over 40 years and especially served as Governor of the Bank of Japan from 2008 to 2013, discusses modern times focusing on the Bank of Japan in the book “What Can We Learn from Japan’s 30 Years of Experience” (translated by Park Ki-young and Min Ji-yeon, Bookie). We summarize the major trends and failures of the Japanese economy and the lessons to be learned.
In particular, the Bank of Japan’s various responses to events and disasters that appeared like a ‘perfect storm’, such as the 2008 global financial crisis, the European debt crisis the following year, the 2011 Great East Japan Earthquake and the Fukushima nuclear power plant accident, which occurred during his tenure as Governor of the Bank of Japan. The specific awareness of the problem and the international response process of establishing a cooperative system with central banks around the world were also calmly depicted.
The author, as the person in charge at the time, calmly analyzed how Japan’s economic and monetary policies worked during those difficult times, and what kind of pains they had to endure due to the overall atmosphere of Japanese society at the time and the tensions with the political world. He recalled that as head of the Bank of Japan, he struggled to combat low inflation, low growth, and low interest rates.
He confessed that he had a hard time with wrong stereotypes and ‘social atmosphere’ during this process. In other words, when the Japanese economic bubble burst in the early 1990s, a false stereotype was formed that the Bank of Japan did not take an active monetary easing policy, prolonging the recession and recession, but it was not easy to overcome this.
He pointed out that this kind of thinking reflects the views of mainstream Western economists and monetarists, and is nothing more than the arrogant confidence of mainstream economics that a financial crisis or economic recession can be controlled through monetary easing policies. The author’s view is that this stereotype was broken when the global financial crisis occurred in 2008 and the world’s major developed countries were unable to escape economic recession and low growth despite active quantitative easing by central banks.
![『From Japan’s 30 years of experience… 』 Shirakawa “Japan’s downfall was not due to a strong yen or financial prescriptions, but to the weakening of industrial competitiveness.” [김용출의 한권의책]](https://img.segye.com/content/image/2024/11/22/20241122504837.jpg "『From Japan’s 30 years of experience… 』 Shirakawa “Japan’s downfall was not due to a strong yen or financial prescriptions, but to the weakening of industrial competitiveness.” [김용출의 한권의책]")
The author argues that the central bank exerts tremendous influence in controlling the money supply through issuing power and interest rate cuts and increases, but while facing short-term responses from the central bank, it neglects to improve product competitiveness and strengthen industrial competitiveness, which are fundamental countermeasures against the economic downturn. He pointed out that it is also a crime. That was the ‘Japanese tragedy’.
“When I talk privately with business leaders, I often hear different views that the root cause of loss of competitiveness is the decline in competitiveness of the product itself rather than the strong yen. In particular, there were many opinions that the broad decline in competitiveness of the Japanese electronics industry was not due to the strong yen… . However, even business leaders with this perception often expressed strong concerns about the strong yen phenomenon when making official remarks as business leaders or heads of industry organizations. The strong voices of resentment in the export industry over the rise in the value of the domestic currency are not unique to Japan, and it is to some extent imaginable that companies benefiting from the strong yen remain silent. However, there will be many consumers and citizens who benefit from the strong yen. Nevertheless, I think it is a tragedy for Japan that even the media and public opinion, which should reflect the average voice of the people, are only critical of the strong yen.” (pp. 402-403)
In fact, his view is that the decline of the electronics industry, which was Japan’s representative industry, was not due to the strong yen, but due to its competitiveness falling far behind Samsung Electronics and LG Electronics. Nevertheless, his view is that if a social atmosphere is created that leaves the root of the problem as is and only demands financial measures, it becomes very difficult for anyone to refute or go against it. “Even if monetary policy is neutral to potential growth rates, excessive reliance on monetary policy can cause distortions in resource allocation and hinder economic growth” (page 558).
The author confessed that he tried to overcome this ‘air of the times’ through the Bank of Japan’s cautious response, but it was not enough to overcome it. What was decisive was political pressure, especially the emergence of ‘Abenomics.’ It was revealed that Prime Minister Abe and the Liberal Democratic Party, which took an extreme stance on monetary policy, overtly intervened and put pressure on him when they defeated the Democratic Party and won a landslide victory in the December 2012 general election.
“On December 19, 2012, two days after it was revealed that the Liberal Democratic Party had won an overwhelming victory in the general election, I visited the Liberal Democratic Party headquarters and met with President Abe and exchanged greetings. At that meeting, Abe requested that the Bank of Japan review the policy agreement of a 2 percent inflation target.” (Page 516)
Liberal Democratic Party politicians also repeatedly threatened to revise the Bank of Japan Act in a way that undermines the independence of the Bank of Japan, demanding that the government adopt a 2 percent inflation target and actively increase the currency. He was torn between the independence of the central bank and the policy demands of the power elected by the people, and was unable to go against the grain of the times and resigned from his remaining position as governor.
“I did not agree with Prime Minister Abe’s views on monetary policy. However, since Prime Minister Abe received authority from the Japanese people in the general election, he thought it would be desirable for the new government to appoint a new central bank governor and make him responsible for the Bank of Japan along with the new vice governor. “I decided to resign as governor on March 19, went to the Prime Minister on February 5 and informed him of my decision, and announced this to reporters that evening” (page 533).
The Bank of Japan’s financial policy decision meeting. Segye Ilbo file photo
The author emphasizes that we need to clearly understand why the growth rate has fallen in relation to Japan’s ‘lost time’ that has continued since 1990. At the same time, he emphasizes that what determines the long-term growth path of about 10 years is not nominal variables such as prices or currency, but fundamental real variables such as productivity, innovation, and labor force growth. In the end, only the continuous structural improvement, improvement, and technological innovation of the government and companies can secure economic vitality and global competitiveness.
The author says that many advanced economies are currently stuck at zero interest rates, and advises that, as a lesson from the Japanese economic experience, “we must avoid Japaneseization, which falls into the trap of zero interest rates.” So, what is the outlook for the future of Japan, which has recently attempted to raise interest rates but is still in a state of prolonged low interest rates?
“Central banks are now in a strange situation. The Bank of Japan is the first central bank to be caught in a ‘prolonged low interest rate’ period, where low interest rates continue for an extended period of time. I don’t think the current situation is sustainable. “At some point in the future, the low interest rate stance will inevitably change” (page 668).
The book also points out the duplicity of developed countries. While the United States and advanced European countries actively intervene in the foreign exchange market, they voice criticism against market intervention by Japan and emerging countries.
“Just as emerging countries responded to the rise in the value of their currencies with easy monetary policies and intervention in the foreign exchange market, developed countries have also intervened in the foreign exchange market over the past several decades, especially more frequently after the Plaza Accord in 1985 and the Louvre Agreement in 1987. “(Page 408)
The book provides significant implications for today’s Korean society. In particular, there seems to be room to compare the path Japan has taken and the social tasks that Korea must overcome in the future, like a balance sheet.
Senior Reporter Kim Yong-chul [email protected]
[ⓒ 세계일보 & Segye.com, 무단전재 및 재배포 금지]
- How effectively does the article balance the presentation of the author’s personal experience with a broader analysis of Japan’s economic situation?
Here are some open-ended questions designed to spark discussion and explore different viewpoints on the themes presented in the article, divided into thematic sections:
**I. The Role of Monetary Policy and Structural Reforms**
* The author criticizes Japan’s reliance on monetary policy to address economic downturn. Do you agree that monetary policy alone is insufficient for long-term economic growth? What other measures should be prioritized?
* What are the limitations of central bank intervention in currency markets? How can governments balance the need for a competitive exchange rate with potential distortions it might cause?
* The article highlights the decline of Japan’s electronics industry. To what extent is this decline attributable to external factors like competition from Samsung and LG Electronics, and to what extent internal factors like a lack of innovation and adaptability?
* What are the potential dangers of “Japaneseization,” or falling into a trap of prolonged low interest rates? How can countries avoid this fate?
**II. Political Pressure and Central Bank Independence**
* What are the implications of political pressure on a central bank’s decision-making process? How can central banks ensure they remain independent while still being responsive to the needs of the electorate?
* In what ways did Prime Minister Abe’s stance on monetary policy reflect the broader economic anxieties and priorities of the Japanese people at the time?
* Does the author’s decision to resign from his position as governor of the Bank of Japan demonstrate an appropriate balance between personal convictions and political realities?
**III. Lessons for Korea and Other Economies**
* What are the key takeaways from Japan’s experience that are relevant to other developed economies, especially those facing similar challenges with stagnation or deflation?
* How can Korea ensure that its economic policies foster innovation and competitiveness in a rapidly changing global landscape?
* Does the author’s criticism of developed countries’ hypocrisy regarding foreign exchange intervention hold merit? What are the ethical implications of a double standard in global economic governance?
**IV. Long-Term Economic Outlook for Japan**
* The article suggests that Japan’s current low interest rate environment is unsustainable. What scenarios might lead to a shift in this situation?
* What steps can Japan take to achieve sustainable economic growth in the long term?
* What are the potential risks and rewards of Japan’s attempt to raise interest rates?
These open-ended questions are designed to encourage critical thinking, debate, and a deeper understanding of the complex economic and political issues surrounding Japan’s economic challenges. They invite readers to engage with the author’s perspectives while also considering alternative viewpoints.
