Economic crisis looms for Japan amid financial and manufacturing problems

Pedestrians cross a street in Tokyo January 29, 2010.
Pedestrians cross a street in Tokyo January 29, 2010. (Reuters)
By Blaine Harden
Washington Post Foreign Service
Thursday, February 4, 2010

TOKYO -- It's been a humbling few days for Japan.

Toyota, the nation's largest company, announced vehicle recalls on three continents and shut down five assembly plants in the United States, and its president told the world, "We're extremely sorry."

Standard & Poor's threatened to downgrade the Japanese government's credit rating because Prime Minister Yukio Hatoyama is moving too slowly to reduce the debt.

And China overtook Japan as the world's largest maker of cars, according to an announcement from the Japanese Automobile Manufacturers Association.

The triple whammy of manufacturing and fiscal problems is a harbinger of what Japan faces in the coming years as its listless economy meanders into an era of reckoning and national loss of face.

Within a year, Japan will probably lose to China its longtime status as the world's second-largest economy. It is also expected to descend into the uncharted waters of public indebtedness as government debt swells to double the size of the country's gross domestic product.

'Quite doomed'

Although the alarming headlines grabbed the public's attention, Japan's most fundamental economic ills have not. Like distant melting glaciers, they have not alarmed voters, mobilized politicians or triggered a national emergency response.

"I do think the current situation is quite doomed, but Japan does not yet have a sense of crisis," said Hiroko Ogiwara, an economic commentator and author of popular books that advise housewives on money management.

The building blocks of Japan's future are collapsing, in the view of many economists. Japan has fewer children and more senior citizens as a percentage of its population than any country in recorded history, but the government does little to encourage childbirth or enable immigration.

Even as the working-age population shrinks, only a third of Japanese women stay on in the workforce after having a child, compared with about two-thirds of women in the United States. Government spending on education ranks near the bottom among wealthy countries.

Although the government has been talking for two decades about weaning itself from dependence on exports, Japan's economy remains addicted to exports for growth.

And deflation, the curse of the "Lost Decade" of the 1990s, is back with a paralyzing bite. Prices and wages are falling as aging consumers save their pension checks and wait for still-lower prices.

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