Japanese lose economic faith

Hold out no hopes for the Japanese government’s latest 50bn package of economic stimuli revitalising the country’s declining economy. Like its five massive predecessors since last autumn, it is unlikely to impress Japanese households any more than it has done many economic commentators.

One reason is that much of the money will end up being allocated to public works and channelled through the construction industry. Japan spends about three times more on construction per capita than any other advanced nation. Even so, most major city roads are congested, most houses outside metropolitan centres do not have access to sewers, and many homes still lack showers or bathrooms.

Public works were an engine of economic growth in the Sixties and Seventies when Japan still lacked highways, ports, other infrastructure essential for a trading nation.

Unfortunately, financing construction has become the only big tool in the government’s repertoire of economic measures. It doesn’t help that a large part of such massive and hastily conceived packages ends up being wasted through inefficiency and corruption. The knock-on effect batters the banks, since political pressures oblige them to keep rolling over loans to construction firms that might otherwise sink into bankruptcy.

Delivering their own verdict on the country’s economic management, consumers are not only saving more but also buying home safes and pulling money out of banks (where it typically earns less than one per cent interest after tax). Alarmed at the trend, the Ministry of Finance is running ads trying to persuade people to spend money again. Straw polls by newspapers suggest these have done no more than reinforce most people’s determination to save even more.

Yet there are some bright lights in the gloom. Just as the Titanic’s orchestra kept playing till near the end, manufacturers have not slackened the pace of innovation.

For example, a joint venture between Fujitsu and NTT Mobile Communications Network is testing a new phone service that it claims can analyse a person’s health from voice prints transmitted through cellular phone.

In a peculiarly Japanese touch, callers will be required to say “I love you”, a sentence which apparently has the ideal combination of consonants and vowels needed to reveal diagnostic stresses in the throat and stomach muscles.

Another miracle of technology is on the way from watchmaker Seiko – a Windows-compatible wristwatch computer, the Ruputer, which will be able to download text and pictures from PCs.

But is the Japanese economy going to sink beneath the waves? No, but much lengthy, painful restructuring lies ahead. One result should be a more open, less regulated market. A change that has already taken place as part of Japan’s Little Bang is to allow people to invest freely overseas where returns are much higher than in Japan. How massive the marketing opportunity will be is uncertain, but it should prove to be one of the most valuable new opportunities to sell financial services before the millennium.

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