The pulsating kaleidoscope of colour that turns stultifying Tokyo days into neon-lit nights means that, after dark at least, it looks like nothing has changed in one of the most exciting cities in the world.
No pace has been lost in the frenetic morning commute either, as office workers battle through the capital’s sweaty streets to get to their desks on time. The differences are more subtle than that. At the end of their journey they are not greeted with a welcome blast of cold air: offices are dim and clammy as companies economise on lighting and air conditioning following power shortages triggered by the Fukushima crisis.
Japan‘s physical recovery from the devastation wrought by the huge earthquake and tsunami in March appears to have been swift outside the worst-hit zones. For the economy, however, emerging from the barren years dubbed the “lost decade” is a slower, more painful process.
Talk of a similar era for Europe might be seen as economic scaremongering but the warning should perhaps be taken seriously when it comes from business leaders in a country that has endured the phenomenon.
Yukitoshi Funo, a senior executive at Toyota, one of Japan’s largest firms, says the country has been in the doldrums since the 1990s and that Europe now faces its own decade of financial inertia as world leaders scramble for a solution to the eurozone crisis. “I am not sure if it is a lost 10 or lost 20 years – but it is about to happen on a global scale, and that is a very big problem,” he says.
Despite the sweltering heat outside the car firm’s Toyota City HQ, Funo cuts a temperate, bookish figure and hardly seems the type to press the panic button without consideration. But he fears that Europe, and perhaps the world economy, is about to enter the wilderness years.
The so-called lost decade was triggered by racy property lending in the 1980s that saw, in an oft-repeated anecdote, the grounds of the Imperial Palace in Tokyo valued at more than all the real estate in California. The Japanese government tried numerous emergency measures including boosting public spending and quantitative easing, but these measures were considered too little too late, and at one point their effect was cut short by an ill-timed rise in VAT. Ever since, Japan has drifted, dipping in and out of recession. Ring any bells?
At one of Toyota’s closest rivals, Nissan, Andy Palmer, executive vice-president and the company’s most senior-ranking Briton in the company, says European countries ought to pay close attention to the lessons learned by Japan. He advocates the harsh medicine dished out by the UK government and laments the “complacency” and near-bankruptcy that afflicted his company until it formed a life-saving alliance with France’s Renault in 1999. “The lesson is: do what you know needs to be done, whether you are a British company, the British government or a European government,” he says.
“When you are in debt, you stop spending,” Palmer adds. “I am watching the UK with some admiration because there seems to be the will to take action on austerity, despite opposition. As a company, it’s the same. When the chips are down, you cut the cloth to fit your means. The companies that recognise the business model has changed are the ones that will come through the chaos.”
In cities such as Tokuyama, Yokohama, Nagoya and Tokyo there is scant evidence of the economic wasteland that “lost decade” implies. In Japanese boardrooms, however, there is a sense of resignation about the home market, coupled with an unsentimental attitude about the action required: look elsewhere.
Japan accounts for just 16% of sales at the construction and mining machinery firm Komatsu, with China now the company’s biggest customer. “Komatsu does not generate any business domestically. We gain from exports,” says its chairman, Masahiro Sakane, who believes Japan needs to cut deficit spending and boost the role of women in the economy.
“If we take advantage of this potential then we can achieve a new, reborn Japan. If we just take the model of spending on public works here and there, then all that large amount of investment may be wasted. Our [financial] burden will be a very heavy burden again. Japan is at a very critical turning point.”
While Japan wrestles with how to revive its domestic economy, exports continue to fill the gap. At Hitachi’s train factory in Tokuyama, workers are waiting to build the prototypes for the carriages that will replace the British Intercity 125s. In Yokohama, Nissan’s headquarters give pride of place to the Leaf electric car, which will be built at overseas sites including the Nissan factory in Sunderland, and in Toyota City Funo explains that Japan is only one of “six wheels” now driving the business.
If this means Britain should battle through a looming lost decade by replicating Japan’s strengths in manufacturing, known as monozukuri, then there are pitfalls too. The phrase cho-endaka, or super-strong yen, is being uttered a lot by Japanese executives because, at about ¥76 to the dollar, it sends costs through the roof as well as making exports too expensive. The government is reportedly preparing to spend ¥4tn (£33bn) on capping the currency’s rise. While the British business secretary, Vince Cable, bemoans an unbalanced UK economy that lacks sufficient manufacturing heft, it could be argued that Japan has the same problem – except that it is industry that is tipping the scales too far.
For Japan, this macroeconomic quandary is being debated as the government battles to reconstruct Tohoku, the north-east region devastated by the earthquake, tsunami and nuclear disaster.
A two-hour train ride north of Tokyo, the Renesas Electronics plant is running normally after a huge effort restored a site that had been reduced to rubble by the shocks which left it unable to produce the microcontroller chips that are crucial to Japan’s motor industry.
Renesas’s Shuichi Inoue admits car firms may buy their products elsewhere, perhaps abroad. “That risk is always there. We don’t want that to happen but, from a customer’s point of view, of course they will want to think about that.”
Concerns about manufacturing disappearing or moving abroad are a familiar refrain in the UK and some economists think Japan could do with exporting less and consuming more anyway. Jeegar Kakkad, former senior economist at the UK manufacturers’ association the EEF, says: “Although the tsunami proved devastating for Japan, the country should use it as a fillip to build better-balanced foundations for their economy.”
At next month’s G20 summit in Cannes, much of the focus will be on Nicolas Sarkozy and Angela Merkel. But everyone should heed the painfully earned wisdom of the Japanese delegation. “A landing should happen,” says Funo. “The question is whether it is going to be a soft landing or a hard landing. It is an unknown.” He says European banks are retreating from lending already: “My view is this contraction is already happening.”
He adds that emerging economies have helped Toyota continue to grow despite the US downturn., but that could be endangered by the eurozone crisis. “European finance was fuelling the emerging economies; it played a significant role. So therefore when European finance contracts, that is a problem. It is already heading towards that direction. It is fate.”
London (CNN) — During the 1970s, Britain’s car industry was the sick man of Europe: many models were poorly designed and built, politicians and the nationalized company management lacked strategic vision while workers were often on strike.
