Month: October 2016

Recalibrating Abenomics

Is it possible that the economic policy debate in Japan is being distorted by bad data?

A recent article by Robin Harding in the Financial Times (“Japan revamps GDP numbers over accuracy fears,” September 30)

https://www.ft.com/content/4a2d1624-8559-11e6-a29c-6e7d9515ad15

suggests that growth in Japan since the Global Financial Crisis may be significantly higher than previously believed. Perhaps most notably, an experimental data series produced the the Bank of Japan suggests that the Japanese economy expanded by 2.4 percent in 2014, following the rise in the country’s consumption tax from 5 to 8 percent, rather than contracting as indicated by official data.

If this were true, several implications would emerge. First, Abenomics may be working better than any of us imagined. This would at least be broadly consistent with the fact that the labor market is extremely tight, with labor shortages emerging in a number of sectors, and that tax revenues and corporate profits have been sharply rising.

Second, growth in Japan may be considerably above potential (although estimates of potential would also need to be re-estimated for consistency with actual new growth estimates). If that was in fact the case, then the view expressed by many that the first increase in the consumption tax in 2014 wold need to be reconsidered, as would the wisdom of failing to implement the planned second hike last year and the planned large fiscal stimulus recently proposed by the Abe administration.

At the same time, signing on to these experimental data would only raise additional questions about the failure of prices to rise substantially toward the BoJ goal of 2 percent. Why would massive monetary accommodation contribute to strong growth but not to significantly higher inflation? While the recent yen appreciation and depressed energy prices play an important role here, even core inflation is currently barely above zero.

Of course, there is no reason to assume that the BoJ estimates are the right ones. But there are reasons to believe that the official estimates are problematic, including a falling response rate and some apparent inconsistencies with other data. The BoJ estimates are based on tax return data which are more comprehensive but, unfortunately, available only with a one-year lag.

Japan: Labor shortages and changing attitudes

It’s well know that Japan is facing demographic trends that are challenging beyond any country’s previous experience. The aging and shrinking of the Japanese population have contributed in a major way to slower growth Andy larger fiscal deficits over the last two decades. More recently, labor shortages have emerged in selected industries, including construction and retail services. Despite this, Japan has taken a decidedly negative view of immigration.

Is this changing, at least a little?

It appears that the Abe administration is pursuing a “stealth” immigration program, with the number of foreign workers in the country set to top one million for the first time in 2016. These workers are typically in the country on short-term arrangements, including “training” programs ( which often provides little training and have raised concerns over poor treatment), and the idea of allowing permanent residents or a path to citizenship remains quite, well, foreign. Nevertheless, with policy-makers clearly aware of the need to attract significant numbers of foreign workers into the future, the possibility of offering longer and more attractive would seem to be in the cards.

There are hints as well that attitudes toward what it means to be Japanese may also have begun to shift. As one small piece of evidence, the last two Miss Japan beauty contests winners have been of mixed racial/ethnic make-up, a development which would have been unthinkable in the past. There may be a generational change taking place in Japanese attitudes.

The other major response to a shrinking workforce has been the forts undertaken in recent years to eliminate workplace discrimination and encourage female labor force participation. While Japan remains well behind most other advanced economies on these issues, there are again some signs of progress. For instance, economy-wide increase in labor force participation in the last few years has been led by women and policies to eliminate tax- and pension-related disincentives for female participation may soon be lifted.

Also, an extremely casual and non-scientific survey of Japanese television and films suggest and increased awareness of the problems that women confront in the workplace. A string of recent Japanese dramas, with names like “Age Harrassment” and “Black President” (this refers to presidents of companies with poor work environments, and is not a racial allusion) show hard-working and effective female employees stymied by sexist attitudes among their largely male managers. Perhaps we are seeing the start of some important attitudinal shifts in this area as well?

Finally, women have taken a number of extremely high political positions in recent months–including as Governor of Tokyo, Ministry of Defense and the head of the main opposition party. (The last of these, Renho, also has ¬†one parent from Taiwan and, until recently continued it hold her Taiwan passport–both of which may have been “disqualifying” just a few years ago.) These three women are perhaps the three leading candidates to serve as the next Japanese Prime Minister which would serve both as a sign of continuing change and as an impetus for furthering progress.