The recent January 2, 2010 Economist offered an interesting analysis of Japan's struggling economy. The declining expectations of many Japanese was reflected in our many conversations with locals in Japan during our visit this past year.
Randy Lynch
"For many Japanese the boom years are stilled seared on their memories. They recall the embarrassing prices paid for works by Van Gogh and Renoir; the trophy properties in Manhattan; the crazy working hours and the rush to get to the overcrowded skii resorts at the weekend, only to waste hours queuing at the lifts.
The bust, when it came, was less perceptible. The world did not come crashing down after December 29th 1989, the last trading day of that decade, when the stock market peaked. The next year Japanese buyers were still paying record prices for Impressionist art at Christie's. It was not until 1991 that the property bubble burst. There was no Lehman-style collapse or Bernie Madoff-type fraud to hammer home the full extent of the hubris.
But once the Nikkei 225 hit 38,916 points 20 years ago this week, life began to leach out of the Japanese economy. In the third quarter of 2009 nominal GDP - though still vast by global standards - sank below its level in 1992, reinforcing the impression of not one but two lost decades. Deflation is back in the headlines. On December 29th the Nikkei stood at 10,638, 73% below its peak, though an expansionary budget drafted on December 25th has given it a recent lift. Urban property prices have fallen by almost two-thirds. Some ski apartments are worth just one-tenth of what the "bubble generation" paid for them.
What effect has this steady erosion of value had on the psychology of the Japanese people? The bust did not lay waste to Japan, after all, as the Depression did to America in the 1930s. Homelessness and suicide have risen, and life has got much harder for young people seeking good jobs. But Japan still has ¥1,500 trillion ($16.3 trillion) of savings, its exporters are world-class, and many of its citizens dress, shop and eat lavishly. As a senior civil servant puts it: 'Japanese people have never really felt that they are in crisis, even though the economy is slowly withering away.'
For individuals the damage lies below the surface. One of the first bubbles to pop, says Peter Tasker of Arcus Research, who has written several books on the bust, was a psychological one: confidence. Instead of getting angry, people lost faith in Japan's economic prowess. 'It became all about declining expectations and how society coped with it,' Mr. Tasker says."
