The Economist on the Olympus Scandal

Tribal Japan

Japan’s cherished loyalty system is part of the problem

Dec 3rd 2011

ON NOVEMBER 25th the venerable Foreign Correspondents’ Club
of Japan experienced a volley of camera flashes, jostling television crews and shouts of “heads down at the front!”—the sort of attention it has rarely enjoyed since the country began its gentle slide down the world’s news agenda. The occasion was the return to Japan of Michael Woodford, the former boss of Olympus, a Tokyo-based lens-maker, who had been fired in October after he started asking awkward questions about $1.3 billion in suspicious transactions. His subject, in a nutshell, was corporate governance—not something that, in the abstract, usually sets reporters’ hearts aflutter. But as the club pointed out, not even the Dalai Lama had drawn such a crowd.

Mr Woodford, who is adroit in the spotlight, says the whole saga has been like walking into a John Grisham novel. Having been sacked by the board and stripped of his office, home and company car on October 14th, the 30-year Olympus veteran—one of just fourgaijin to run a leading Japanese company—was told to catch a bus to the airport. The American Federal Bureau of Investigation, Britain’s Serious Fraud Squad and the Japanese authorities are all now on the case.

Mr Kikukawa, Mr Mori and the company’s statutory auditor have since resigned from the board of Olympus, accused of a huge cover-up of securities losses dating back to the 1990s. But other board members who supported them and who dumped Mr Woodford still have their jobs. The company insists that he was fired for failing to understand its management style, and Japanese culture, not for being an awkward whistleblower.

But in retrospect, he says, one of the most chilling moments came when he was still chief executive and had unsuccessfully challenged his chairman, Tsuyoshi Kikukawa, to explain the missing money. He found another director, Hisashi Mori, also seemed to be stonewalling him. “Mr Mori, who do you work for?” he recalls asking, expecting the answer to be Olympus. “Michael, I work for Mr Kikukawa. I’m loyal to Mr Kikukawa,” Mr Mori is said to have replied.

If every foreigner who didn’t understand Japanese culture were fired there would hardly be a gaijin businessman left in the country. The corporate ethos of every culture is in some sense unique. Japan’s is especially perplexing, not just because of its well-known emphasis on loyalty to the group, seniority-based pay and long-term job security. Firms are also doggedly clannish on the inside. As Mr Mori implied, loyalty to a manager or department can trump loyalty to the firm—even if that works against everyone’s long-term interests.

The other difficulty, which extends far beyond business, is a general suspicion in Japan of outsiders’ points of view. Take Tokyo Electric Power (TEPCO), operator of the Fukushima Dai-ichi nuclear-power plant, wrecked by the March 11th earthquake and tsunami. A recent report by Bloomberg, citing minutes of a 2009 meeting, revealed that TEPCO and its regulator, the Economy and Trade Ministry, dismissed scientific findings about the risks of such natural disasters that could have helped prevent the meltdowns of three of the plant’s reactors. The nuclear industry is deeply incestuous. Not only do bureaucrats parachute from their ministries into the utilities, but their sons and daughters occasionally marry each other too. Nicholas Benes, who founded the Board Director Training Institute of Japan, a non-profit organisation, says that having more outsiders on TEPCO’s board, whether independent nuclear specialists, foreigners or women, might have helped ring alarm bells. As it was, 18 of the 20 voting members on TEPCO’s board came from the company itself.

Tribalism extends to politics and the media too, frustrating debate, good policy, and the ability to call politicians to account. Members of Japan’s two biggest political parties acknowledge quite candidly that their first loyalty is to their faction’s boss, not to any policy. Hence the ruling Democratic Party of Japan often appears to be more at war with itself than with the opposition.

As for the media, senior reporters are assigned to cover factional power struggles within the parties, whereas complex policy questions are often covered by junior hacks. The mainstream media has a system, known as the Kisha Club, that tends to encourage complicity with official sources and conspires to keep trouble-making riff-raff out of press conferences. Financial journalists quietly acknowledge that one reason they buried Mr Woodford’s claims on the inside pages early in the Olympus scandal is that the story was broken by an obscure monthly magazine. Worse, Mr Woodford first spoke to the Financial Times, not the Nikkei Shimbun.

Time for a shake-up

In politics, there are encouraging signs that some of this is starting to change. The prime minister, Yoshihiko Noda, has made policy front-page news for the first time in years, with his decision to push Japan gingerly towards negotiating a free-trade treaty with America and at least eight other countries, under the framework of the Trans-Pacific Partnership. Meanwhile, on November 27th, a publicity-seeking former governor, 42-year-old Toru Hashimoto, dealt a severe cuff to both mainstream political parties. Beating a candidate they jointly supported, he won election as mayor of Osaka on a single campaign pledge: to unite the city and prefecture of Osaka into one large metropolis that would strengthen its finances as well as its bargaining power with the political establishment in Tokyo.

His appeal suggests one stark aspect of governance in Japan—the patience of voters with hopeless mainstream politics—may at last be weakening. But in the tradition-bound, loyalty-bound business world, there is as yet little such clamour for change, from employees or shareholders, however much Mr Woodford has rattled their cages.

Haikyo House

This a haikyo (abandoned) house in a neighborhood in Otawara, Tochigi Japan. Due to the real estate bust of the 1990s and stagnant population growth, you will find a lot of these types of buildings throughout Japan. This one is right in the middle of an active neighborhood.

Please visit Budget Trouble blog that has plenty more great photos from Japan and where you can submit your own Show Me Japan photos.

Japan's Debt Crisis

Below is a portion of a recent January 27, 2011 article from Time.com regarding Japan's debt crisis.

Standard & Poor's on Thursday downgraded Japan's long-term credit rating. Granted, the rating is still very, very strong, but the action does indicate how investors are growing nervous about the deteriorating state of government finances even in those economies considered to be the bedrock of the global economy.

Japan has been heading here for a while. Its government debt to GDP ratio, at around 200%, is already the highest of any industrialized country. Its economy has been in a slow-motion economic crisis for two decades, yet policymakers have proven incapable of undertaking the sort of reforms necessary to get growth going again. And despite talk of a hike in the consumption tax and other measures to shore up state finances, the latest budget, passed in December, is anything but austere, with borrowing expected to exceed tax revenues. Thus giant budget deficits are expected to continue. S&P noted all this in its statement on the downgrade:

The downgrade reflects our appraisal that Japan's government debt ratios--already among the highest for rated sovereigns--will continue to rise further than we envisaged before the global economic recession hit the country and will peak only in the mid-2020s. Specifically, we expect general government fiscal deficits to fall only modestly from an estimated 9.1% of GDP in fiscal 2010 (ending March 31, 2011) to 8.0% in fiscal 2013. In the medium term, we do not forecast the government achieving a primary balance before 2020 unless a significant fiscal consolidation program is implemented beforehand.

Nor are the underlying dynamics within the population and economy going to help Japan get out of its fiscal mess:

Japan's fast-aging population challenges both its fiscal and economic outlooks. The nation's total social security related expenses now make up 31% of the government's fiscal 2011 budget, and this ratio will rise absent reforms beyond those enacted in 2004. An aging and shrinking labor force contributes to our modest medium-term growth estimate of around 1%.

S&P, however, has little faith that the current administration running Japan can implement a serious program that could reverse the deteriorating trend in national finances:

In our opinion, the Democratic Party of Japan-led government lacks a coherent strategy to address these negative aspects of the country's debt dynamics, in part due to the coalition having lost its majority in the upper house of parliament last summer. We think there is a low chance that the government's announced 2011 reviews of the nation's social security and consumption tax systems will lead to material improvements to the intertemporal solvency of the state... Thus, notwithstanding the still strong domestic demand for government debt and corresponding low real interest rates, we expect Japan's fiscal flexibility to diminish.

To be clear here, Japan is not Greece or Ireland. S&P's downgrade doesn't mean Japan is spiraling into a debt crisis. Japan is still a creditor nation with giant foreign exchange reserves and high national savings. But at the same time, the downgrade shows the slippery slope all of the developed world finds itself on. As debt mounts and aging populations put more strain on government budgets, there is a rising possibility that investors will eventually lose confidence in countries like France, the U.K. or Japan in the same way they have with Greece, Ireland and Portugal. This isn't going to happen tomorrow, but it will happen unless governments fix their finances, and in an intelligent way that supports long-term growth.

Japan has no "coherent strategy" to tackle problems that have been decades in the makinge

That is the report from credit reporting agency Standard & Poor's. That is a pretty harsh and depressing statement. Since the economic collapse in Japan in the late 80s, Japan apparently decided to solve the problem with massive government spending rather than to deal with their debt and undergoing massive restructuring. It appears that decision over 20 years ago and the lack of much willingness to change has only made Japan's problems worse. Will Japan ever realize their problems and deal with them in an aggressive way? I'm not sure.

Below is an article from Fortune.com describing S&P's recent and shocking downgrade of Japan's debt credit rating.

Japan downgrade: The beginning of the end?

Posted by Katie Benner

January 27, 2011 2:39 pm

What a downgrade of Japanese debt by S&P could mean for the country's future and for the rest of the world.

Tokyo still looks bright.

The timing of the downgrade of Japan's sovereign bonds by Standard & Poor's on Thursday came as a bit of a surprise to some. After all, Japanese government bond yields have been relatively stable recently, the yen fairly strong, and, as Citigroup points out, the government has vowed to address its sky-high debt load this year.

But S&P isn't convinced that's going to happen. "The downgrade reflects our appraisal that Japan's government debt ratios--already among the highest for rated sovereigns--will continue to rise further than we envisaged before the global economic recession hit the country and will peak only in the mid-2020s."

The agency has been concerned about Japan for months, issuing reports last October and November that said the country's debt, the highest in the developed world, threatened to destroy its credit worthiness. As it did then, S&P says today that the country has no "coherent strategy" to tackle problems that have been decades in the making.

When Japan's economy collapsed in the late 1980s, the government chose not to write down bad loans or take the pain of massive restructurings. Instead it launched a massive borrowing program in the hope of stimulating the economy enough to outgrow its rough patch. Government debt grew from 66% of gross domestic product in 1989 to 226% in 2009 -- by far the largest percentage of any industrialized nation. (The U.S. figure is 93%.) Despite the spending, Japan's economy never strengthened, and the country fell into a cycle of increased deficit spending.

Certainly Japan's woes are no secret. But perhaps paradoxically, because the country has stagnated for so long, many assumed the economy had bottomed out. Sure, a recovery may not be likely -- but a collapse? Hard to imagine, or so one might think.

The debt problem could push Japan's rating into the BBB category after 2015, S&P said in November, "and by 2025, the country's fiscal indicators might weaken to the extent that they would be more typical of the performance we currently associate with speculative-grade sovereigns (those rated 'BB+' or lower)." Today's downgrade pushed its long-term rating from AA to AA-minus.

While the move came as a surprise to some, a handful of investors and economists saw the downgrade as an acknowledgment of what they have believed for years: Japan is en route to a national debt crisis and a massive devaluation of the yen.

Kyle Bass, who runs the Dallas-based hedge fund Hayman Advisors, has been the most vocal prophet of Japan's doom, taking his message to conferences and the media for over a year. The genial southerner, who darkens at the mention of the country's finances, is wagering his investors' money (and his own) that, sometime in the next five years, the Japanese government will have to pay such high interest rates to sell its bonds that the government will effectively go bankrupt. "The Japanese have created the circumstances for the greatest financial failure in world history," he says. The worldwide impact will be "awful."

Money manager Vitaliy Katsenelson and Devin Stewart, a senior director at the Japan Society in New York and a Carnegie Council Senior Fellow, agree with Bass. The way they see it, Japan has never meaningfully flirted with a loan default because it has always been able to borrow money from its own life insurance companies, pension funds, and banks.

Indeed, these institutions own more than 90% of all of Japan's outstanding debt. Moreover, they loaned the government ever-larger sums and demanded almost no yield in return. That left the Japanese government much like a man who carries a huge balance on an ultralow-interest-rate credit card: His salary may never be large enough to pay the bill in full, but he can always cover the minimum payment.

Disastrous demographics

Bass, Katsenelson and Stewart say that this balancing act is being upended because of a simple shift in demographics. Seniors now make up about 23% of the country, according to estimates from the Organization for Economic Development and Cooperation. That's nearly twice the percentage of retired citizens in the U. S. and three times that of the rest of the world.

The graying of the population is playing out in two ways that could have disastrous consequences for Japan. First, entities like life insurance companies and the Government Pension Investment Fund will be net sellers of Japanese government bonds going forward so that they can gather cash to support the new pensioners.

Meanwhile the population is in long-term decline -- the working-age group peaked in 2009 -- so there are fewer workers and a smaller pool of tax receipts to support the retirees. Japanese tax revenues have collapsed to levels not seen since 1985, both because of the demographic shift and the global recession.

That means Japan has to sell more bonds even as its traditional customers begin selling more than they buy. The rub: "The available pool of capital to buy bonds is no longer greater than the debt needs," says Bass.

Japan will someday have to entice new investors, mostly from other countries -- and it doesn't have an appealing story to tell. The government currently runs a deficit of about $500 billion a year and growing. And it has the highest corporate taxes and among the highest income taxes in the world. Attempts to raise the nation's value-added tax have been rejected by the people. Efforts to raise capital by liquidating the country's $2.8 trillion in financial assets (many of which are U.S. Treasuries) would send the sort of desperate signal that would hurt the price of Japanese bonds.

In short, if Japan wants to sell bonds to the rest of the world, it's going to have to offer higher interest rates. But if Japan paid what the rest of the G-7 pays, its interest costs would immediately exceed its revenues. Current debt payments are about $244 billion a year. Bass has calculated that every percentage point in higher yields adds another $125 billion in annual interest expenses. So if investors demand just an extra two percentage points above current yields -- bringing Japan in line with what Canada would pay to issue debt -- that adds $250 billion in annual interest payments to the country's debt figure. That eats up the nation's entire $489 billion in revenue.

Aaron Costello, a global investment strategist at Cambridge Associates says that the need to borrow from the outside would probably trigger a debt crisis, but it could be a long time before this happens. In some ways, Japan's fate is tied to the speed with which investor sentiment can change.

"Like all government debt, Japan faces a confidence game," Costello says. "Right now there's plenty of confidence, but the markets inside and outside of Japan may move in anticipation of stress. It could price in the need for incremental foreign purchases and you could see yields easily double to 3%."

The Japan of the future

Vice Finance Minister Fumihiko Igarashi said this week that his country must fix its budget problems or face a debt crisis that could trigger a global depression.

Bass says the scenario would mean the political chess game between debtor and indebted nations is on. "Central banks should be positioning themselves for this and playing out the endgame," Bass says. "How many times do you think the U.S. military has game-theoried a conflict between Iran and Israel? I'd be willing to bet countless times. But how many times do you think our Treasury has played out a Japanese bond crisis? I'm willing to say never."

Most importantly, the difference between Japan, which seems relatively sanguine, and the struggling EU nations, which seem to flirt with disaster everyday, is that no one has enough money to bail out Japan.

"If Lehman Brothers was too big to fail, then Japan would be too big to save," agrees Costello. "In some respects Japan is ahead of the curve, because Europe and the United States are eventually going to have to deal with this, and it will be interesting to see how this plays out."

The alarm bells of Nagasaki

Below is an article from Economist.com about the population and apparent economic decline of Nagasaki. Nagasaki since the time of the Edo period has been one of Japan's most open and vibrant cities. While the rest of Japan was closed to foreigners during the Edo period, Nagasaki still engaged in limited trade with the Dutch and Chinese. Is the article's description of the decline of Nagasaki an accurate description of much of Japan today? I wonder if depopulation is necessarily a bad thing if managed right. I'm not sure if Japan will mange it's depopulation right however. The article

The alarm bells of Nagasaki

Japan’s “window on the world” is now a window on what ails the country

AT 60, Hiroshi Ikeguchi wryly describes himself as one of the youngest in his district. He has lived his whole life in Irifune, just above the Mitsubishi Heavy Industries shipyard. But like his ageing neighbours, the Nagasaki suburb is collapsing around him. A dozen houses have been left to rot after their owners have died. Some are piles of timber; in others, katsura trees grow through the roofs. Outside one is a new year’s offering of fruit left by a neighbour who still laments how the death of the “kind old lady” who lived there went undiscovered for a week. Peer through the letterbox, and in the gloom you see a calendar pinned to the wall. The date is September 1988.

In Mr Ikeguchi’s youth, when Nagasaki was rebuilding itself after nuclear devastation in 1945, the streets near his house rang with the sound of shipwrights walking to the Mitsubishi yard each morning. Now Nagasaki’s economy has gone still. The port city’s fortunes show how three forces sapping Japan’s energies—depopulation, overcentralisation and foreign competition—are hurting not just rural backwaters but once-prosperous cities on Japan’s fringe. The phenomenon remains partly hidden. Residents of luxury apartments across the bay complain about Irifune’s shabby appearance. If only they knew, Mr Ikeguchi says, how bad it really is.

The brain drain reinforces a demographic trend. The prefecture’s working-age population has shrunk from over 1m in 1990 to 874,000 in 2008, a result both of the exodus and a declining birth rate. The prefecture of 1.45m is shrinking and ageing so fast that one of Nagasaki’s main department stores, Tamaya, has closed down its children’s department and stocked up on undergarments and hearing aids. With shrinking investment, and fewer jobs and young families, new house-building has fallen by half in the past ten years.Nagasaki’s troubles are self-reinforcing, argues Takamitsu Sato, president of the Nagasaki Economic Research Institute. Since the 1960s a brain drain has sucked people towards Osaka and Tokyo. Young people who left to find jobs elsewhere never came back. Even now, seven in ten college students leave to study, and over half of young people find jobs elsewhere.

So now Nagasaki’s living standards are falling too, a shock in a country where economists said that individuals could be better off even if the overall economy shrank in size. Mr Sato’s institute reckons that if today’s trends continue, GDP per person will fall from ¥3.26m ($28,000) in 2007 to ¥3.14m by 2020. Everything, he says, is going downward.

Can Nagasaki pull out of the spiral? Historically, after all, the city is Japan’s most open, allowing in Dutch and Chinese merchants in the 17th-19th centuries when foreign trade with the rest of the country was banned. Nagasaki is one of the closest cities to China and South Korea, with opportunities for tourism and trade. The museum to the atom bomb and its victims is world famous. Nagasaki is the birthplace of Japanese Christianity. It was a cradle of insurrection against the last shogunate, helping to shove Japan into the modern age with the Meiji Restoration of 1868.

To reverse the decline, Mr Sato has drawn up a plan with local officials that looks for overseas revenues to make up for falling domestic ones. That is hardly revolutionary. Among the goals are doubling numbers of foreign students, to 3,000; turning the shipyard into a tourist site; and bolstering sales of kamaboko, a rubbery fishcake. But asked about bolder measures such as encouraging foreign investment and skilled immigrants, Mr Sato says there is “not the right environment” for that yet.

Meanwhile, Nagasaki’s once-mighty shipping industry has been keelhauled by South Korean and Chinese yards with lower costs and quicker thinking. And Mr Ikeguchi says that even modest government initiatives, like demolishing abandoned houses in Irifune to attract newcomers, take years to grind through city hall.

Like the elders of Nagasaki, the prime minister, Naoto Kan, realises that Japan must look abroad since its own markets are shrinking. At the start of 2011, he declared (143 years after the fact, some might say) that this was the “first year of opening Japan to the outside world” in the modern era. Nagasaki is a good example of why action needs to be swift and bold.

Sisters found dead in Osaka apartment fell from wealthy family into abject poverty - The Mainichi Daily News

Sad story. Japan is not the country many people in the rest of the world believe where there is no poverty. This is probably more common then we realize.

Sisters found dead in Osaka apartment fell from wealthy family into abject poverty - The Mainichi Daily News:

Sisters found dead in Osaka apartment fell from wealthy family into abject poverty


TOYONAKA, Osaka -- The two women found dead in an apartment here, with no food and only a pittance in cash, are thought to be two sisters who fell from a wealthy family to such abject poverty that one apparently starved to death.

The two are thought to be Kiyomi Okuda, 63, and her sister Kumiko, 61. No food was in the room's refrigerator, and only a meager 90 yen were found in a purse. A bank book in Kumiko's name showed a balance of zero yen since June of last year.

Autopsies showed that the two died one after the other on around Dec. 22 of last year, the older woman from heart disease. The younger woman's cause of death could not be determined, but weighing only 30 kilograms and showing evidence of malnutrition, starvation seems likely.

According to a 67-year-old male relative, the two sisters were single. Their parents were wealthy landowners, but their father died about 20 years ago, and a few years later their mother died as well. Neighbors say that the two sisters worked at jobs including as school office clerks until their late 40s and lived in their parents' house across from the apartment complex, and they were even the apartment complex's owners.

However, their house was later put up for auction, and the two moved into the apartment complex, where many of the rooms were empty.

"Even though they owned land, they may not have had any income. They seemed to have been in debt, and after they could no longer depend on their father's income, things were probably particularly hard," said the male relative.

Around three or four years ago, a former classmate of the younger sister noticed her limping and recommended she go to a hospital, but she said she couldn't afford to go, even though she wasn't well.

Last year in October, the older sister went to a housewife who lived nearby and begged for a loan of 10,000 yen. The housewife says she lent her the money and the older sister thanked her and said she would try to make the most of it.

"I knew that they were very poor, but I never imagined they would die this way," said the housewife.

According to sources from the city of Toyonaka, the sisters told an Osaka District Court official who had told them they had to evict that they "didn't know what to do" about their lives. Electricity and gas to the sisters' apartment was shut off in September of last year. Unable to reach the two women, the court official asked for advice from the city on how to meet with them.

In response, the city suggested going with police and entering the women's apartment, but the city did not provide local welfare workers with information on the women or otherwise take active steps to intervene.

"It is a terrible shame that they did not contact us for help," said a city official.

Is Japan all doom and gloom?

Below is an AP article from MSNBC. It paints a pretty gloomy picture of Japan's future. My question, is this article just another typical gloomy Japan article based on exaggerations and oversimplifications or is this trull what Japan's present and future look like?

By MALCOLM FOSTER

TOKYO — Japan has been overtaken by China as the world's No. 2 economy. Its flagship company, Toyota, recalled more than 10 million vehicles in an embarrassing safety crisis. Its fourth prime minister resigned in three years, and the government remains unable to jolt an economy entering its third decade of stagnation.

Shizuo Kambayashi / AP

For once-confident Japan, 2010 may well mark a symbolic milestone in its slide from economic giant to what experts see as its likely destiny: a second-tier power with some standout companies but limited global influence.

For once-confident Japan, 2010 may well mark a symbolic milestone in its slide from economic giant to what experts see as its likely destiny: a second-tier power with some standout companies but limited global influence.

As Japanese drink up at year-end parties known as "bonen-kai," or "forget-the-year gatherings," this is one many will be happy to forget.

Problem is, there's little to look forward to. With a rapidly aging population, bulging national debt, political gridlock and a risk-averse culture slow to embrace change, Japan's prospects aren't promising. And a tense, high-seas spat with China has intensified fears of its neighbor as a military as well as economic threat.

A few optimists hope Japan can harness its strength in technology and its "Cool Japan" cultural appeal — from fashion and art to "anime" cartoons. The country needs to shed its reliance on manufacturing, they argue, and find new growth areas such as green energy, software engineering and health care for its elderly.

But talk to university students, and their outlook is bleak.

Many worry about finding steady jobs and whether they can support families — concerns that have contributed to Japan's low fertility rate of 1.3 children per woman. Average household income has fallen 9 percent since 1993.

Makoto Miyazaki, a 22-year-old student at prestigious Keio University in Tokyo, senses forces outside his control — and Japan's — are going to dictate his future.

"Internationally, Japan is between big countries like China and the U.S. And Korea is becoming a major competitor — that's a big threat to Japan," he said. "I feel like we have fewer choices."

It's a startling contrast with the 1980s, when Japan was flush with cash and some experts believed its economy was poised to dominate the world.

Millions have given up the goal of lifetime employment at a major corporation and become "freeters," flitting among temporary jobs with few if any benefits. As companies cut costs, temporary workers have grown to a third of the work force, up from 16 percent in the mid-1980s.

Further, the population is projected to fall from 127 million to 90 million by 2055 — 40 percent of them over the age of 65. That's going to place a heavy tax burden on workers.

Economic difficulty is a chief reason more than 30,000 Japanese have committed suicide every year for the past 12 years.

Hopes for change from the Democratic Party, which toppled the long-ruling conservatives last year, have fizzled. The Democrats lost control of the upper house of parliament in July elections, setting the stage for political gridlock.

Prime Minister Naoto Kan has acknowledged Japan's declining status.

His prescription: "Open up the country." He advocates reducing trade barriers, loosening regulations and making the country a more attractive place to invest.

His Cabinet recently approved cutting the corporate tax rate by 5 percentage points to 35 percent and is weighing whether Japan should join a U.S.-led free trade zone, the Trans-Pacific Partnership, that would slash tariffs on everything from electronics to food.

Business leaders say doing so is vital, but farmers fear a flood of cheaper imports would ruin them. Analysts say it could be a vehicle for economic revival but also lead to job losses and social dislocation, especially in rural areas.

"Merely unleashing the forces of competition and the free market isn't going to do the trick because people who feel vulnerable will crawl back into whatever they have," said Koichi Nakano, a political science professor at Sophia University in Tokyo.

Nakano and others say sweeping changes are needed in both policy and mindset, from expanding the social safety net to overcoming a deep fear of failure that has constrained entrepreneurship and risk-taking — and Japan's economic potential.

About 77 percent of Japan's jobless aren't getting unemployment benefits, according to International Labor Organization data, in part because temporary workers don't qualify.

Shizuo Kambayashi / AP

Japanese will drink up at year-end parties known as "bonen-kai," or "forget-the-year gatherings," noting 2010 is one year many will be happy to forget.

Japan can be innovative: It is the world leader in hybrid vehicles and industrial robots. Nintendo's Wii gaming console is a hit in living rooms around the world. Entrepreneur Tadashi Yanai, Japan's richest person, built Fast Retailing Co. and its low-cost Uniqlo brand into one of Asia's biggest clothing retailers.

But Japan sometimes undermines itself by being insular. Its sophisticated mobile phone industry, for example, has failed to grow overseas because it operates on a network hardly used anywhere else — earning it the nickname "Galapagos Syndrome."

One optimist is Michael Alfant, an American who has worked in Japan for 20 years. He sees the country becoming more entrepreneurial and focusing on opportunities in service industries.

"Japan is reinventing itself," said Alfant, CEO of Fusion Systems, a startup software company, and the incoming president of the American Chamber of Commerce in Japan. "I'm very confident Japan will get there."

Any change is likely to come gradually.

A conformist, consensus-based culture means Japan is generally slow to make changes or respond to crises — as seen in Toyota Motor Corp.'s handling of its safety woes.

"One would think there would be more of a sense of urgency here," said Jeff Kingston, director of Asian Studies at Temple University's Tokyo campus. "At best, Japan will muddle through, meaning it will avert catastrophe, but it is hard to see anything but bleak prospects in a country that should be doing better given its enormous strengths."

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Shrinking Japan

Most of you are probably aware of Japan's impending population decline and it's rapidly aging society. You may have heard of some of the serious threats from this decline such as depopulating rural areas, a pyramid pension system on the road to collapse, a shrinking economy.

If you have not heard of this issue or not thought too much about it, I recommend you read this excellent blog article from Spike Japan. It's a long post but well worth the time as it does an excellent job of describing Japan's population problem from the point of view of rural Hokkaido.

Giant tuna fetches $177,000 at Japan fish auction

Giant tuna fetches $177,000 at fish auction - World business- msnbc.com

Is this one of the leading economic indicators used in Japan to determine the health of the economy?

The tuna was sold in auction at the Tsukiji fish market and was the most expensive tuna sold there since a tuna sold for $220,000 back in 2001.

One thing the article mentioned which I am surprised to hear is that 40 percent of the tuna catch sold at the Tsukiji auction was caught from abroad, including from Mexico and Indonesia. I would have thought that there would be very little tuna not caught near Japan being sold at the market.

Japan Unveils New Plan for Growth - NYTimes.com

Japan Unveils New Plan for Growth - NYTimes.com

Mr. Hatoyama has some ambitious plans for Japan according to this New York Times article. Some goals seem realistic but others seem to me, as well as various analysts, to be completely unrealistic.

Some of his goals that I think are doable include turning Haneda into a 24-hour international airport and expanding the economy at an average rate of 2% over the next 10 years. The goal for expanding the economy seems doable to me based solely on his meager projection of 2% average per year. Compare that to China's average of 8 to 10% growth per year.

Some of Mr. Hatoyama's other goals seem completely unrealistic pie-in-the-sky goals such as creating an Asian free-trade zone which I assume would include China and tripling the number of foreign visitors to Japan to 25 million. I don't think it will be possible for China and Japan to agree on a free-trade zone, at least by 2020. I also don't see how it's possible to achieve the 25 million foreign visitors goal but maybe since he has given 10 years to accomplish it. Good luck.

iPhone blowing up worldwide, big in Japan after all

iPhone blowing up worldwide, big in Japan after all: "iPhone blowing up worldwide, big in Japan after all"

It's about time. My feeling is that the old "flip phone" with the small screen and no keyboard is so outdated. I was wondering why so many people in Japan are still using what I feel are archaic flip phones. While in the United States and elsewhere, most people have moved away from those phone and to devices such as the iPhone and the Android with bigger screens and a functional keyboard. I understand the Japanese phones are pretty advanced with many features such as built in payment features, train transit passes, and sophisticated cameras. But the old flip phone style with the small screen and no keyboard seems so old.

Japan: Automation Nation?

Below is an interesting article from Newsweek. It asks the question of why Japan, a nation of robots and automation, has so many people working in what seems to be unnecessary and redundant positions. Positions such as elevator operators or department store greeters. Years ago when I first visited Japan, I also was surprised to see gas station attendants and elevator operators. I just figured that Japanese appreciated this type of special service or that the average Japanese person did not want to pump their own gas.

Japan: Automation Nation?

The world's most efficient economy still employs lots gas station attendants and elevator operators. Why?

Daniel Gross

Newsweek Web Exclusive

Jun 30, 2009 | Updated: 12:01 p.m. ET Jun 30, 2009

More than any other country in the world, Japan is a case study in the triumphs of human engineering. Every Japanese manufacturer prides itself on energy efficiency and zero-landfill waste policies. The train and subway stations are models of precision and the application of information technology. Late last week, I visited Toyota's astonishing Tsutsumi auto plant, near the car company's headquarters in Toyoda City. With a capacity of 400,000 vehicles per year—this is where the Prius is made—it's clean, bright, full of erector-set conveyor belts, and thinly staffed. The welding shop is like a scene from The Terminator—a thicket of robots extend their arms, moving large pieces of metal and blasting them with shots of heat. (The section where robots stamp "Obama '08" and "NPR" bumper stickers on the hybrid vehicles must have been around the corner.) On Monday, I visited a small company in Osaka that hopes its cardboard, female-shaped robot will garner a share of the mannequin market. The engineers also demonstrated a robot that can dance and act and a third that can identify whether people are men or women ("You are a beautiful lady!") and guess their ages (inaccurately, it turns out).

And yet, while traveling around Japan with a group of journalists, I've also continually encountered what seem to be exquisitely engineered inefficiencies. There are a large number of people whose jobs seem to be standing around and calling out greetings and gesturing the way to enter stores, restaurants, hotels, and office buildings. Walk into a midrange hotel, and a swarm of bellmen and desk clerks worthy of a Four Seasons springs into action. At the Takashimiya department stores, two women flank each bank of four elevators, pushing the call button. Parking garages in Tokyo feature a half-dozen uniformed parking attendants who call out greetings and farewells. When we visited the Japan Iron and Steel Federation, we saw three women on their hands and knees working on stains. (What, there's no robot that specializes in stain removal?)

Everywhere you go, there seem to be human redundancies, people spending valuable time doing things that don't need to be done or that could easily be done by a single person. At a luncheon for about 20 at the Nippon Press Center, we were waited on by a half-dozen waiters, as if we were aristocrats. Even rarely visited government agencies have multiple press officers. Visit a company or a government agency in the United States, and you're likely to get key data and presentations on memory sticks or CDs. Here, we've been buried in paper everywhere we've gone—laboriously printed out and handed out with great ceremony. When I went to a police station (a lost passport scare; don't ask), it took 30 minutes to impart a small amount of information, which the officer dutifully wrote down on a sheet of paper. There was no computer in sight.

A lot of the human inefficiencies have to do with Japan's high regard for politesse and manners. Social and business transactions take time because of the need for extensive greetings and farewells. Technology here seems to be for moving people, goods, and information—not for completing human transactions. And with universal health insurance and a national pension program, there's a dignity to low-level service jobs in Japan. It could be that the inefficiencies have something to do with a societal desire for full employment. Japan would prefer to have its citizens in make-work jobs than not working at all. For much of the postwar glory years, Japan's unemployment rate was in the 2 percent range. Even now, amid a deep global recession, it's at about 5 percent.

URL: http://www.newsweek.com/id/204656