Japan Economy 2022 Sakoku 1

Neo-Sakoku: A Risky Bet for the Japanese Economy

⏱ 11 minutes

The term Sakoku was used several times over the past 2 years in our articles related to Covid-19 in Japan, but it does not hurt to remind what it means.

Sakoku 鎖国 refers to the Japanese isolationist policy that had the country closed between 1650 and 1842. If you want to learn more about what the term entails, you may find interesting to read April 2022’s issue of our friends, the free newspaper Zoom Japan.

🎌 A lost opportunity for a country that is self-isolating again

Naturally, the effects of the current Sakoku are mostly visible in Japan’s borders policy. Frontiers have been tightly closed since March 2020, and reopened to visa holders on 2022, March 1rst at last. Students, businesspeople, family members and others can now enter in Japan somehow easily. For the largest number of other visitors (namely tourists), the wait is expected to last at the minimum a few more weeks.

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The Japanese population, which is already ageing (nearly 30 % of the Japanese are aged 65 years and older), has been decreasing for the past 20 years: in 2021 it diminished by 644,000 inhabitants, a loss that creates important problems of age balance and influence.

As for its soft power, it is going around in circle. While South Korea has aggressively entered the soft powers' competition and is seriously challenging the "Cool Japan", in 2021, the archipelago’s box office was trusted by 3 animated movies:

  1. Evangelion’s last installment,
  2. The yearly Detective Conan (Meitantei Konan), and,
  3. Belle (Ryū to Sobakasu no Hime) by Mamoru Hosoda (a retelling of Summer Wars).

The most stricking is that there is only one non-Japanese movie to make it in the top 10 (Fast and Furious 9).

Even before the advent of the Coronavirus 🦠, the Carlos Ghosn case already sent out an alarm signal, cooling down foreign investors and CEO’s optimism regarding the possibility of a serene business relationship with the archipelago.

Now this long and restrictive neo-Sakoku is mainly hurting the country itself. Whereas Japan had a real opportunity to take precedence on Asia’s financial markets over Shanghai and especially Hong-Kong – both asphyxiated by the "zero-Covid" measures, big foreign companies are also leaving the country: Bosch and Siemens’ renouncement to their Japanese development plans in February 2022 may be the first sign of a backfiring policy...

A policy that reflects the mind of a country that likes passing by foreigners but has a complicated relationship with those who would like to settle for the long-term, in a context where hiring foreign workers has become a necessity.

A sign of the times: whereas Japan’s English language proficiency is the lowest of the OECD countries, it succeeded in causing the disaffection of the foreigners it hired to teach the international lingo.

Even Shinzo Abe, the long lasting former Prime Minister whose "Abenomics" results are questionable, voiced concern about Japan being left behind on the international stage.

👹 A society struggling to adapt due to outdated mentalities

The use of the fax machine and the hanko stamp, the administrative toils or the ad absurdum inflexibility seem skirmish when the situation is good overall. However, as in many other fields, the Coronavirus has unveiled the rigid stances hampering Japan’s developments.

Three recent anecdotes are quite revealing:

  • A school in Setagaya (Tokyo) forbid a pupil to use a transparent eraser on the ground that the school’s rules of procedure only allowed white erasers;
  • Tokyo Police has lost 2 floppy-discs (!) containing personal info of 38 inhabitants who had applied for social housing in Meguro Ward;
  • A fireman of Kimetsu City (Chiba) had 10% cut off on his salary due to his YouTube gaming activity of which he made a ¥1,15 (~US$7,438) million revenues in less than one year.

📱 Internet and personal data

In the same vein, saying that Japan does not understand the Internet 📶 is an understatement. Determination is indeed often needed to browse the Japanese Web filled with websites of outdated designs, and non-existent mobile versions or URL redirection.

Nintendo has been for years the only video game editor to track down contents creators on Twitch or YouTube who would not comply with their rules to live play their games. Its division Pokémon Company is even more aggressive with those who would dare using clips from their animes, and it is not the only one among the Japanese studios.

Leaks of personal data have reached record figures in 2021 in Japan, with 137 cases most of which would have been prevented with more thorough security updates. The larger breach happened to Omiai, a dating app with the data of 1,71 million users exposed. As for JAL and ANA, about 1 million users of their miles program had their data leaked.

As long as the Japanese law will not enforce punishment of these breaches, companies are unlikely to try improving their prevention.

🚙 Transition to electric vehicles

Several countries have long embraced incentive policies for car 🚙 fleet renewal, to reduce the carbon emissions of an industry responsible for a large quantity of emissions. Japan, however, is lagging, as usual when flexibility is required.

Toyota was one of the first to bet on the hybrid car at the end of the 1990s and was very successful with the Prius, however they have been sitting on their laurel ever since. Like Toyota, the other Japanese car manufacturers have fallen behind on the rechargeable hybrid cars and especially on the all-electric ones.

Thus, Japan’s car output has decreased again by 2,7% in 2021, the lowest level for 45 years with only 7.85 million vehicles. It is almost half less than the previous 1990 record (13,49 million). Meanwhile, the output grew by 7,1% in the rest of the world...

Lying in wait and realizing the preparedness of an industry whose slightest progress is often created after years of work, the South-Korean Hyundai is coming back on the Japanese market with its wide range of ready to use electric car fleet.

👔 Press freedom and diplomatic relations

The Japanese government’s press conferences are question/answer sessions, with a codified script regardless of the journalists’ questions. In this regard, the archipelago’s very low ranking in the world Press Freedom Index is not so surprising: 67th in 2021, between Niger and Malawi (the US rank 44th). Accordingly, data tampering is still a recurring issue.

Therefore, no one should be surprised by the Japanese revisionist nationalistic reaction to Ukraine’s communication on 1945’s defeat of Nazism and fascism showing together Hitler, Mussolini and Hirohito. Japan’s ruling party required the former emperor being removed from the document, but complained 2 days later that Japan was not included in the list of countries thanked by the Ukrainians for their support...

🤷‍♀️ Parity and women’s rights

Princess Mako leaving for New York after marrying a commoner was last winter’s hot topic, but it is actually the result of years-long undermining that made her suffer from post-traumatic stress disorder after pressures from the Kunaicho Imperial Household Agency and the medias.

However, Japanese women’s mental health problems are not limited to the Imperial Household. One daresay that consideration of women in Japan can be perplexing:

  • An executive of the Yoshinoya fast food chain was fired in April after claiming during a lecture that the company must find "a strategy to turn virgins into junkies" of their products before they could be invited by men in more expensive restaurants;
  • In 2018, Japanese medical schools had to recognize that they voluntarily failed female students at the entrance exam for the reason they were more likely to end their career to start a family (since the scandal, the number of women admitted overcomes men’s number!);
  • In 2016, Kanagawa prefecture unveiled its "woman act" for the promotion of more women into leading roles, with a presentation picture showing 11 men! At the time of writing, there is still only 1 woman out of 25 representatives...

The Covid crisis did not help women’s economic situation, as they are traditionally in charge of taking care of the children, either full-time stay-at-home moms, or working part-time jobs that are unstable and / or unskilled and therefore low-paid. In the wake of the crisis, female suicide rate has spiked in 2020.

📉 The Japanese economy undermined

💴 Impoverished households

While the average salary since 1990, adjusted for inflation, has risen by 25% in Europe, it stalled in Japan. At the times, the average salary in South Korea was twice less than Japan’s, but it has been topping Japan’s since 2014. The same happened for the GDP per capita in 2018.

According to government’s figures, the 30 to 50 years old Japanese household’s annual revenue has decreased by ¥1 million (~US$6,468) compared to 20 years ago.

Whereas they were 15% of the work force in the 1980s, today baito, the underpaid short-term /temporary workers, constitute 40% of the work force. Even a big ferry ⛴️ operator like Shiretoko has fired all its seasoned skippers to replace them with said baito temps, a few days before a shipwreck that caused 26 deaths and missing in Hokkaido.

The consequences, to put it simply, are that Japanese citizens are now facing an important decline of their purchase power. Over the fiscal year 2021, prices have increased by 7,3%, a record since such data started to be monitored in 1981.

Major food brands had to rise their products’ prices, a rare decision in Japan:

  • +10% for Asahi beers;
  • Up to +15% in Lawson, 7-Eleven and Family Mart konbinis; and,
  • +20% at McDonald's.

43% of Japanese companies foresee an increase of their prices during fiscal year 2022.

As for Japan’s food autonomy, it peaked at 78% in 1961 and is now only 37% in 2020. the archipelago is more than ever at risk of food scarcity.

The apartments’ prices in the Greater Tokyo have also reached a peak with an average of ¥63,6 million (~US$411,368) in 2021. The previous record was ¥62,1 million in 1990, at the apex of the economic bubble… in the center of the capital, the average price even amounts to ¥84,5 million (~US$546,486).

💸 Stagflation and weak Yen

Due to its lack of flexibility and an abysmal productivity, Japan is slowly moving away from its wealthy country status. Amidst the world economic uncertainties, the scarcity of raw materials and the comeback of inflation, Japan is bearing the consequences the hard way.

Because of the decline in purchase power, the archipelago could not get the recent economic recovery and high growth that Western countries experienced. Its competitivity is on decline and even the IMF warned on the risk of hindering the post-pandemic recovery.

Stagflation, meaning the economy is caught between a weak or zero growth and a rising inflation, has now become an actual sword of Damocles hanging over Japan.

In the meantime, the Yen is increasingly becoming weaker compared to Euro and more importantly Dollar, with a noticeable decline since early March. At the end of April, it overcame ¥130 for USD1, a threshold that had not been reached for 20 years and Japan is now stuck with its central bank accommodating policy.

A boon for foreign travelers and investors in Japan, but a disaster for the Japanese economy that saw a ¥5,4 trillion (~34.9 billions dollars) trade deficit in 2021, while its debt already amounted 259% of its GDP in 2020.

💉 Subsidized economy

Like many other developed countries, Japan released consequent financial aids to help sustain the economy during Covid times:

  • A ¥100,000 (~US$647) subsidy to every resident in Japan in 2020, that created some stirs as it was not solely intended to the modest income households.
  • The GoTo Travel domestic subsidy campaign in 2020 cost ¥2,7 billion (~17.5 billions dollars) with a mixed result.
  • 2021’s more targeted support was generous, especially for the most damaged sectors that had to resort to a "partial activity"; or for the bars and restaurants that were required by the government to close earlier during the months of mambo (the so-called "quasi-state of emergency").

The "no matter what the cost" policies have long ended in Western countries, but Japan does not seem ready to stop and now envisions to sustain children of poor households with a ¥6,2 billion (~40.1 billions dollars) subsidy. Regarding GoTo Travel, no information has leaked yet, but as time passes it is unlikely to resume...

However, there are some glitches in the distribution of money: a man in Yamaguchi erroneously received the financial aid intended for 463 eligible households, namely ¥46,3 million (~US$299,471)!

More concerning: the highly respected economical newspaper Nikkei could only find the trace of 6,5% of the ¥12 billion (~77.6 billions dollars) used for the Covid funds…

In a late April press conference, Prime Minister Kishida announced new money printing to face inflation, at the risk of a continuous price rise and maintaining the Yen weak…

🪧 Some voices raise concern and alarm

As it was already the case last winter, a few weeks before the announcement of reopening to students, Japan is now criticized both within the country and at the international level for its management of the closed borders. Indeed, the reopening to international tourism looks more than ever like a providential solution to attract a large amount of currency, especially in the current context of a very weak Yen.

Beside the Japanese Business Association Keidanren, the Japanese airline ANA rose 🌹 its voice as well, and their concerns seem to have finally caught the government’s attention in the end of April. The pressure is growing and there is little doubt that with some appropriate media coverage, a solution will arise.

Travel operators are tired of waiting. Last year, only ¥9,1 billion (~59 billions dollars) were spent by tourists in the archipelago: the industry never had such low income since the beginning of statistics in 2010. Hotels 🏨 have seen a drop in frequentation by 47% compared to 2019.

While its neighbors compete to become the next favorite tourist destination in Asia, how long will Japan persist in its new Sakoku in a globalized economy as many agree that the Coronavirus has become endemic?

In the mid-19th century, the Japanese isolationist policy ended with the "forced" opening by famous Commodore Perry. Nowadays, Japan is likely to be dragged down by its own economy.

Updated on June 09, 2022 - Le pari risqué de l'économie japonaise sous son néo-Sakoku