This Time, Japan’s Recovery Seems for Real
Like cherry blossoms that symbolize springtime and renewal in Japan, signs of an end to the nation’s 15-year economic slump are beginning to emerge. Shares are trading at five-year highs, property values are ticking up and consumer price deflation appears to be ending — all indications that the world’s second-largest economy appears poised for recovery. At the same time, say Wharton faculty and outside observers, Japan continues to face challenges as it grapples with sluggish and outdated financial institutions, massive government debt and strained political relations with its fast-growing neighbor, China. In this special section, we offer an overview of Japan’s economy, a report on the move to reform its massive postal savings system, and an analysis of the important role China plays in Japan’s recovery. In addition, we describe the impact that two Japanese Internet companies are having on corporate governance, and look at the revival of Japan’s retail sector, with its continued emphasis on customer service and demand for high-quality brands.
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After 15 years of stagnation and decline following the spectacular collapse of its 1980s bubble economy, Japan is finally showing signs of a recovery. The Nikkei index is trading at five-year highs. Real estate prices are rebounding. Deflation appears to be under control and interest rates, effectively at zero for more than five years, may soon begin to rise. Although there have been false starts in the past, much of today’s optimism stems from the September reelection of Prime Minister Junichiro Koizumi, who ran on a platform of economic reforms, including new discipline for the banking system and a proposal to privatize the country’s postal savings system. These reforms are crucial to reviving the world’s second-largest economy, according to Wharton faculty. And while the pace of change seems glacial by American business standards, the recovery may have come at the right speed for Japan.
In Tokyo’s grand and sprawling department stores, the business day still begins with a ceremonial rite. Moments before the doors swing open, the store manager and key employees form a human tunnel inside the main entrance. As shoppers stream in, the employees bow deeply — a sign of respect to the customers they will be serving. Japanese consumers continue to command this respect at home and in shopping capitals around the world, although more than a decade of recession and economic malaise has dampened the country’s 1980s spending frenzy. Today’s Japanese consumers have come through a retail evolution that has left them with more choices but a continuing devotion to quality and luxury brands, according to Wharton faculty and Japanese retail executives.
In Southern China’s Pearl River delta, Japanese manufacturers Kyocera Corp. and Konica Minolta Holdings are building high-tech optical products. In plants stretching across China, Japan’s Matsushita Electric Industrial Co. has 60,000 employees making everything from batteries to microwave ovens to semiconductors. And Toyota Motor Corp., Japan’s premiere industrial company, just selected China for the first overseas production of its hot-selling hybrid Prius. Increasing production and investment in China’s booming economy are keys to Japan’s recent financial turnaround after 15 years of recession and sputtering recoveries that eventually died out.
The reawakening of Japan’s economy following more than a decade of decline comes after a series of major economic reforms, but the biggest change may be yet to come. Privatization of Japan’s massive postal savings system, which holds savings and insurance assets valued at $3 trillion for 85% of Japan’s population, is set to take place over the next 12 years. The proposal, overwhelmingly endorsed by voters in a September special election, will shift a mountain of assets from government control to private markets. Wharton faculty say the long timetable for carrying out the plan — which stretches to 2017 — may help blunt political opposition that is likely to continue, even after the process starts.
Two upstart Internet companies that each waged hostile takeover bids for much larger established media companies may have permanently jolted Japan, Inc. into a new era of shareholder activism. The takeover wars — launched by Livedoor Co. for Nippon Broadcasting System and its partner, Fuji TV, followed by Rakuten Inc.’s pursuit of Tokyo Broadcasting System — were the hottest topics in Tokyo business news this year. In the end, both challengers enjoyed only limited success, but Livedoor and Rakuten will have a long-term impact on the corporate structure of Japan by emboldening other shareholders to take a more active role in corporate governance, according to Wharton faculty.