Wall Street Journal Hypes Japan's So-Called Decline

In a front page story yesterday, the Wall Street Journal seems to have responded to the arguments that Eamonn Fingleton and others have been making about Japan's surprising strengths. The headline was "End of Era for Japan's Exports." It went on to say: "One of the world's greatest export engines is running out of steam." The story was sparked by the fact that Japan has had its first annual trade deficit since 1980. Japan could run trade deficits for years to come, the article warns, particularly if the yen remains at the level of abouot 76 to the dollar, which is very high.

The article described the country as an "export superpower slowly transform(ing) into a nation of pensioners."

It's undeniably true that Japan's economic model has changed in view of the emergence of South Korea and China. It has been forced to move up the technology food chain and not compete as much in sectors where labor costs are a decisive factor. It has chosen to "ride the dragon," as I have described, by making the key components that the Chinese and others need to make products. And Japanese companies have been going offshore for at least 25 years to locate some manufacturing elsewhere. They haven't done it as enthusiastically as American companies have, but they have nonetheless being doing it. And they are snapping up foreign assets at a record pace. The result has been a very different profile--Japanese companies have gone upscale and gone international. There have been some well-publicized problems at Toyota, Olympus and Sony, and I have raised questions about whether they need to adapt, but overall the Japanese are sitting on astonishing wealth.

The Wall Street Journal article finally acknowledges these strengths toward the end: "Japan is still a rich country with a stable of manufacturers that hold big shares of global markets from automobiles to endoscopes...And Japan still has 251 trillion yen ($3.2 trillion U.S.) more in foreign reserves and investment assets--like U.S. Treasury bonds--than other countries hold in Japanese investments, according to the Ministry of Finance. That is a bigger capital surplus than any other country in the world." It goes on to quote the famous Eisuke Sakakibara, once known as Mr. Yen, as saying that trade deficits in goods don't really matter as long as the country maintains a current-account surplus.

So Japan is hardly a nation of pensioners. It is sitting on huge wealth and is hugely sophisticated. Yet the Wall Street Journal seeks to portray the country as a has-been. "The island nation is being swept up by big global forces outside its control," the authors write. That's just not true and it's time that the American media come to grips with the fact that Japan's economic model has not failed, but has rather succeeded in achieving most of the objectives the country has pursued.