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Friday, 19 September 2014

Wasted crisis

Japan quake anniversary shows lessons unlearned

Japan’s remarkable recovery from last year’s tragic earthquake leaves big lessons unlearned. The economy bounced back more quickly than expected after March’s earthquake, tsunami and resulting nuclear leak. But the government flunked a bigger test by failing to push through painful reforms. Now Japan is a year older, deeper in debt and facing the same economic downward spiral it was in before the catastrophe.

The Japanese spirit of gaman – enduring the unendurable – enabled the country to cope with the disaster. Industrial production is on track to return in March 2012 to where it was at the end of 2010, according to Merrill Lynch. That’s small triumph: GDP is likely to grow just 1.7 percent in 2012 and slow thereafter, the IMF projects. Japan’s trade balance fell into deficit last year for the first time in 31 years and it has net debt equivalent to 131 percent of GDP.

The post-earthquake period was a chance to administer economic remedies. Civic-minded citizens were switching off appliances and taking stairs instead of elevators to help conserve power. But squabbling politicians squandered the mood of public sacrifice. Rather than cut pensions or raise taxes to help ease the national debt, the government has managed only to pass 21 trillion yen ($253.6 billion) of emergency reconstruction packages. Winning opposition support for those cost former Prime Minister Naoto Kan his job.

Progress on more contentious reforms – such as doubling the five percent consumption tax – has ground to a halt amid political in-fighting. Corporate crises too are allowed to drag on: think of the accounting scandal at Olympus, or the prolonged insolvency of Tokyo Electric, the utility at the centre of last year’s nuclear scare. Japan still won’t tolerate more immigration to offset a declining birthrate that, by government estimates, will reduce Japan’s population by 30 percent in 50 years.

For now, such gloomy demographics are keeping Japan from lurching into fiscal crisis: its greying savers help finance its massive debt. When they start drawing down more than they save, it will be too late. Japan has managed to struggle back to where it was before the disaster, but it has wasted valuable time that could have been used to avert its own fiscal reckoning.

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Japan was struck on March 11, 2011 by the most powerful earthquake ever known to have hit the archipelago, a magnitude 9.0 earthquake centered under the ocean 70 kilometres off its eastern coast so powerful it shifted the Earth on its axis as much as 25 centimetres. The quake triggered a tsunami that struck the coast with waves up to 40.5 metres in height and that travelled up to 10 kilometres inland.

The disaster resulted in at least 15,850 deaths and caused what the World Bank estimates is $235 billion in economist costs, making it the world’s most expensive natural disaster. The tsunami also inundated a nuclear power plant in Fukushima prefecture, causing nuclear accidents that prompted the evacuation of residents within a 10 kilometre radius.

After shrinking 1.5 percent in the first quarter of 2011 compared with the same quarter of 2010, Japan’s GDP grew 7 percent in the second quarter, and the IMF expects it to have ended 2011 only 0.5 percent smaller.

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