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Japan Real Wages in May 2022 Post Biggest Drop in Nearly 2 years on Inflation

Japan’s real wages extended a decline in May to post the biggest year-on-year drop in nearly two years, government data showed, as consumer inflation hovering near a seven-year-high outpaced nominal wage growth, reducing households’ spending power.

Higher living costs amid low-wage growth are likely to curb Japan’s consumption-led economic recovery from the coronavirus pandemic.

Inflation is also a top issue for voters in an upper house election on Sunday, although Prime Minister Fumio Kishida’s ruling party likely to increase the number of seats it holds, according to an opinion poll published on Monday.

In May, inflation-adjusted real wages, a key gauge of consumers’ purchasing power, fell 1.8% from a year earlier, the labour ministry said.

The biggest slump since July 2020 followed a downwardly revised 1.7% decline in April.

The consumer price index the ministry uses to calculate real wages, which includes fresh food items but excludes owners’ equivalent rent, rose 2.9% in May, hovering near 3.0% in April that posted the largest jump since October 2014.

Price inflation outpaced nominal total cash earnings, which rose 1.0% in May, down from a downwardly revised 1.3% rise the previous month, the data showed.

Overtime pay, a barometer of corporate activity strength, rose 5.5% year-on-year in May, which was the biggest advance in nine months and higher than April’s downwardly revised 5.0% growth.

Special payments, which include seasonal bonuses firms often cut when they face headwinds, fell 7.0% in May, yet the reading tends to be highly volatile in months other than the June to August and November to January bonus seasons.

The drop in special payments, which marked the biggest fall in 16 months, was the main reason for the slowdown of total cash earnings from April, a health ministry official said.

Source : Reuters

Charts: Japan Core Consumer Price Index YoY Increased in May 2022

The index excludes fresh food but includes fuel costs

Source : Trading Economics

The Japan that Abe Shinzo Made

Noah Smith wrote . . . . . . . . .

I’ve been coming to Japan pretty regularly for 20 years now. But only this time did it really hit me how different this country feels from the place I first visited back in 2002. Not just all the shops and buildings — in fact, the building boom in big cities, though real, might be the least of the changes. Nor is it just the residue of the pandemic. Attitudes and lifestyles and culture are all different.

When I thought carefully about it, I realized that the changes mostly boiled down to three big things: The expansion of the labor force, the rise of immigration and diversity, and the country’s willingness to assert itself in the international security sphere. And although big changes like these are never the work of just one person, all of them can be traced directly to policy shifts under Japan’s longest-serving postwar Prime Minister, Abe Shinzo.

When Abe took over as PM in late 2012 (his second and much more consequential stint in that job), he inherited a country in deep trouble. It had been over two decades since the bursting of the famous land and stock bubbles, and although the country’s growth revived a bit in the 00s, it didn’t recover to previous levels. A rapidly aging and shrinking population, stagnant productivity growth, and the loss of global market share by many of Japan’s flagship companies all weighed heavily. And then in 2011, disaster struck — a massive tsunami that killed around 16,000 people and destroyed a nuclear plant, irradiating a city and leading to a popular backlash against nuclear electricity.

Abe set himself the task of turning this ship around, with a bold economic reform package called “Abenomics”, as well as some stealthier measures that may ultimately prove even more consequential. But on top of that, Abe set himself another task — that of shedding Japan’s post-WW2 pacifism and turning it back into a “normal country” with a place in the global security framework.

To many in Japan’s expat press (which far too many Americans rely on for their news about the country), this latter goal immediately pegged Abe as a fascist. But in fact, Abe is a civic nationalist — a guy who wants to make his country stronger in any way he can. And the things Abe did to make Japan stronger — encouraging the hiring of more women, opening the country up to more immigration — often made it more liberal in the process.

If you want to read more about Abe, I highly recommend Tobias Harris’ biography, The Iconoclast: Shinzo Abe and the New Japan. He was only in power for 8 years — long by Japanese standards but average for the U.S. But when he left office, he left a very changed country; in many ways, it’s Abe’s Japan now, and it will be Abe’s Japan for decades.

Everyone works now

Japan was always a place where workers worked very long hours. But not everyone in the country was a worker. Many women were homemakers. After the bursting of the bubble, many young people dropped out of the labor force and became NEETs (Not in Education, Employment, or Training), many of whom lived with their parents. And Japan’s extreme longevity, combined with a very early retirement age at many companies, meant that there were a significant number of old people enjoying multiple decades of retirement.

This society, divided between workers and non-workers, was not entirely without benefits. Free from the need to spend all day at a desk, many young (and old!) Japanese people were free to create and consume the cultural products that made the country so iconic from the 90s onward. It made Japan an amazing place to vacation, or to live if you didn’t have to work in a Japanese office. But the system was deeply unfair, and it was also deeply unproductive, and in the long run it couldn’t be sustained.

When Abe came to power, his first goal was to reverse the country’s chronic demand shortage. He hired Kuroda Haruhiko to head the Bank of Japan; Kuroda then embarked on a massive program of monetary easing that pumped up demand and (more or less) got the country out of the deflationary spiral it had been experiencing for decades. Abe also carried out some reform efforts in the agricultural sector and elsewhere. That raised corporate hiring. You can really see this in the employment statistics. The percentage of Japanese people with jobs between the ages of 15 and 74, which had remained roughly steady at about 67%, shot up to 73% during Abe’s tenure.

This was facilitated by the neoliberal labor reforms of Abe’s mentor, Koizumi Junichiro, which had made it easier to hire low-paid contract workers a decade earlier.

So who was going to work? Young people, for one — the NEET still exists in stereotype but is much rarer on the ground. Old people started working more too:

But the most important group, by far, was women. Married Japanese women who in previous times would have been homemakers now went out and got jobs. This wasn’t all due to demand, but also to Abe’s efforts to change the country’s culture around work and family life. He constantly jawboned companies to hire more women, requiring companies to report on their progress. And he also providing a lot of funding for free preschool (which made it easier for mothers to work). As a result, Japanese women went to work in greater numbers than ever before, achieving an employment rate higher than in the U.S.:

This boom in employment didn’t fix all of Japan’s economic problems, but it did accelerate GDP growth somewhat, and — along with an increase in corporate profitability — improved the government’s fiscal position. But it also changed the country’s culture. By the end of the decade, there were a lot fewer people in urban Japan who were just hanging out around town; everyone was at work.

The biggest cultural change, though, was in the role of women in Japanese society. Moving from a norm of homemaking to a norm of market labor altered gender roles and relationships, even if only about 10% of women actually made the shift.

It also resulted in a large increase of women complaining about work; now that it was natural, accepted, and even socially required for them to be in the office, many women seemed to feel more comfortable expressing their anger at the way they were treated in Japan’s ossified and often sexist corporate culture. Whereas in earlier eras they might be told to stop complaining and go get married, in a world of universal employment, such dismissals would sound ridiculous even to the people making them. Hopefully, now that women in Japan are all expected to have jobs, there will be more social impetus toward creating true gender equality in the workplace. (The government is certainly trying to help, with new reporting requirements on gender diversity in management roles.)

Abe’s tenure as Prime Minister thus represented the end of Japan’s post-bubble period — a long dreamy period where corporations and families coasted on built-up wealth. The country is back to the grind.

Japan’s military is back

The second big change was Abe’s reform of Japan’s military and security posture. He came into office declaring his intent to reform the constitution, especially the famous Article 9 that forbids Japan from maintaining an army or engaging in war. Popular opinion didn’t allow Abe to change the constitution, but he managed to accomplish much the same goal by “reinterpreting” the constitution in 2014 to allow for “collective self-defense”.

True pacifism is not actually feasible in the modern world, at least not in a threat-filled neighborhood like East Asia. Thus, Japan had always “interpreted” the renunciation of war and armies to allow a Self-Defense Force. This was, in fact, an army, though it was restrained by the law in many ways. Now, with Abe’s reinterpretation of Article 9, that army is far less restrained.

One aspect of this is that Japan is rearming. The ruling party wants to boost military spending to 2% of GDP from the current 1.1%; that would be almost at the world average, and possibly higher than China. This would include “counterstrike capability” — essentially, missiles to take out missile bases in enemy territory.

Japan is also preparing to start arms exports.

Japan’s once long-standing “Three Principles on Arms Exports” have gone far away.

Weak yen is not good for importing cutting-edge weapons from the U.S., but might help export “made-in-Japan.”

So what kind of wars might Japan fight, now that it once more allows itself to fight wars? Obviously, it would defend itself if its territory were attacked, but this was true before the reinterpretation. Japan is also vanishingly unlikely to embark on some sort of imperial conquests; not only does it have no economic or political reason to do so, but its neighbors would all be capable of resisting it in any case.

The difference, as I see it, is that Japan might engage in a war in defense of other countries in the region — most importantly, Taiwan. In recent years, Japanese leaders have become far more vocal about their desire to protect Taiwan from Chinese conquest. Deputy Prime Minister Aso Taro said in 2021 that a Chinese invasion of Taiwan would represent an “existential threat” to Japan, a statement echoed in a recent defense white paper. Around the same time, a deputy defense minister said it was necessary to “protect Taiwan as a democratic country”.

To this end, Japan has been building up a string of bases in the Ryukyu Islands that lie between Japan and Taiwan. This is basically a version of China’s A2/AD defensive strategy, but turned against China. Japan has also begun actively seeking de facto alliances within the region, particularly with India and Australia as part of the Quadrilateral Security Dialogue. It’s also reaching out to Vietnam.

As for Japan’s public, there is still a widespread commitment to the ideal of peace, and to the veneer of pacifism provided by Article 9. But there’s also widespread recognition that Japan is threatened by a number of powerful neighbors (China, North Korea, and Russia). And importantly, there may be a change in the way Japanese people perceive their country’s place in the global order — no longer as an island of pacifism sitting aloof from the conflicts of nations, but as a part of a liberal order that stands opposed to the predations of authoritarian empires. The ubiquity of popular support for Ukraine in Tokyo that I’ve seen on this trip surprised me; it was much more than what I see in the U.S.

This attitude is also reflected in the high levels of popular support for Japan’s new Prime Minister, Kishida Fumio, who is widely considered hawkish toward China.

In a way, the Abe administration thus represented the end not just of the post-bubble period, but perhaps the post-WW2 period as well. The legacy of Japan’s fascist imperial conquests will no doubt continue to dog the country to some degree, as will the painful memory of its ultimate defeat. But those memories were never going to define Japan forever; at some point, it was going to become a normal country again, and normal countries have militaries and military alliances.

Immigration and diversity

Revitalizing the economy and revising the role of the military were the two big changes that Abe came into office promising to do. But his most significant change was something that he did sort of under the radar. Under Abe, Japan’s stance toward immigration and diversity changed completely — perhaps irrevocably.

Post-WW2 Japan was never nearly as closed or xenophobic a country as some stereotyped it as being. But it definitely took in very few immigrants. For years, economists and journalists had been calling for the government to increase immigration in order to deal with the problem of a shrinking, aging population, but the government resisted doing this.

Until Abe. As soon as Abe came into office, the number of foreign workers in the country started increasing at an exponential rate.

At first this was due to discretionary administrative policy, but eventually the Abe administration put some policies in place to institutionalize immigration. In 2017 it created a fast track for permanent residency, aimed at recruiting skilled workers. And in 2018 it created a guest-worker program that included a path to permanent residency. These programs are similar in their broad outline to the immigration policies of other rich nations.

The age of immigration that Abe inaugurated has already begun to change Japan in very noticeable ways. Tokyo feels like a truly international city; already as of 2018, one out of eight people turning 20 in Tokyo wasn’t born in Japan, and it’s common to hear foreign languages spoken in the streets.

This is obviously a big social challenge for a country that until recently wasn’t used to having to deal with diversity. Already there have been the predictable online battles about whether half-Japanese athletes and beauty queens are truly Japanese. But overall, the people in favor of embracing foreigners into the social fold seem to be winning those battles. In 2020 there were even BLM-style rallies against police mistreatment of Kurdish immigrants. A few immigrants are running for political office.

Covid interrupted the inflow of workers from overseas, but the continued existence of Abe’s immigration policies mean the flow will resume at some point. And so the face of Japan will change more, as other cities undergo a transformation similar to Tokyo’s. Japan will inevitably develop cultural, political, and economic institutions for integrating immigrants into their society in one way or another.

This will certainly lead to increasing public debate, as it did in European countries. There will be some degree of nativist backlash, as there is in every country. But I would not assume that anti-immigration sentiment will succeed in Japan where it has failed elsewhere. This is a far more liberal and open country than the stereotypes would have you believe.

But in the end, it was Abe who threw the switch and started this momentous change. Facing a demographic crisis never before seen in his country’s history, he chose to change the country in unprecedented ways. Faced with a choice between national weakness and decline and the wrenching uncertainty of demographic change, he chose the alternative that had the best chance of keeping Japan wealthy and strong.

Ultimately, I believe that will be Abe’s legacy. At a moment when economic, geopolitical, and demographic factors were threatening to send Japan into permanent decline and irrelevance, he did what he had to do to keep Japan in the game. The full ramifications of that won’t be known for a long time. But already, the country feels different. The old era is gone, a new one is in bloom.

Source : Noahpinion

In Japan, Women with New Born Baby Spent 5 Times More Than Men in Housework and Child Care

Source : Nikkei

Chart: Japan Birth Rate Down to 1.3 in 2021

The number of births is the lowest ever.

Source : 日本経済新聞社

Chart: The Japanese Economy Contracted 1.0 percent on an Annualized Basis in Q1, 2022

Compared with market estimates of a 1.8 percent fall

Source : Trading Economics

China Military Body May be Target of Japan Counterstrike Capability

Speculation is growing in security circles in Japan as to whether targets of a proposed “counterstrike capability” would include China’s Central Military Commission, the highest decision-making organ of the country’s armed forces led by President Xi Jinping.

The speculation came to light in a parliamentary meeting last week when the Defense Ministry did not answer directly a question from an opposition lawmaker seeking to know whether what has until recently been called “enemy base attack capability” targets would include China’s CMC.

The meeting came after the ruling Liberal Democratic Party on April 27 suggested Prime Minister Fumio Kishida’s government acquire counterstrike capability to attack enemy bases and “command and control functions.”

The LDP has yet to clearly say what such functions entail but defense experts say the proposed capability could cover command centers issuing orders for missile attacks and would expand Japan’s options for retaliating against mobile- and submarine-launched missiles.

In a meeting last Wednesday of the House of Representatives Committee of Foreign Affairs, Japanese Communist Party member Keiji Kokuta asked if the government envisages the CMC and the Five Theater Commands as among the targets of a counterstrike capability.

The five commands are in charge of defense of the eastern, southern, western, northern and central regions of China. The Eastern Theater Command, for example, oversees Taiwan, Japan and the East China Sea.

Masahisa Sato, director of the LDP Foreign Affairs Division, and other security experts say China has about 1,900 short- and medium-range missiles that can reach Japan.

Kokuta cited a document the Japanese Ground Staff Office used in an internal meeting in September 2017.

The document shows an organizational chart of the Chinese military and says there is a command system between the CMC and the Five Theater Commands.

Kokuta said the LDP proposal does not exclude the CMC and the five commands from possible targets, and asked, “Wouldn’t this lead to a full-scale war with China?”

Makoto Oniki, deputy minister of defense, did not directly address the question and said, “Attacking the base of a guided missile would constitutionally fall under the scope of self-defense if (the government) perceives there were no other means (to defend Japan).”

Oniki said he is not in a position to comment on the LDP proposal, which also includes a call to double Japan’s defense budget to 2 percent or more of gross domestic product over five years.

The LDP wants the proposal to be reflected when the government revises the National Security Strategy and other documents by the end of the year.

Speaking at Wednesday’s meeting, Foreign Minister Yoshimasa Hayashi said the government is considering adopting a counterstrike capability “without ruling out any possible option so as to fully prepare ourselves for safeguarding people’s lives.”

LDP lawmakers hope developing a counterstrike capability will serve as a deterrent against possible attacks on Japan, especially in light of China’s assertiveness in the Indo-Pacific region and North Korea’s nuclear and missile development.

Critics, however, say such a measure would represent a major shift from Japan’s exclusively self-defense-oriented security posture under its war-renouncing Constitution.

Source : The Mainichi

Chart: Japan Corporate Prices Increased 10% in April 2022

Double digits increase since 1980

Source : Nikkei

Charts: 10-year JGB Yield Climbed to 6-year High

Source : Bloomberg and Trading Economics

Chart: Japan Large Enterprises Business Condition DI in December 2021

Source : Mainichi