The Susanoo boom?

Once again David Pilling, the FT’s Tokyo correspondent, has a superb analytic piece on Japan, in this case the Japanese economic recovery (unfortunately subscription only). He reports that forthcoming statistics are expected to confirm that the economic recovery that began in 2001 will surpass the fifty-eight-month “Izanagi” boom that lasted from 1965 to 1970.

He cautions observers, however, from being overly optimistic about the current boom, which should perhaps be called the “Susanoo” boom, Susanoo being the mythological offspring of the creator god Izanagi, characterized by a stormy temperament (hence he is known as the god of the sea and storms).

The current boom has been relatively smooth, thanks in large part to the reforms implemented by the Koizumi / Takenaka duo. But those reforms were, in Takenaka’s words, reactive: “Mr Takenaka argues that the Koizumi administration pursued largely ‘reactive reform’ — chiefly cleaning up the banking system’s — aimed at restoring a modicum of economic health. The only ‘proactive reform’, he says, was privatising the post office, a giant bank whose savings he hopes will be used more productively by the private sector. More proactive reform, including deregulation and further freeing the labour market, could raise the growth potential further, he argues.”

Underlying indicators suggest, however, that like the sea that follows the whims of the tempestuous Susanoo, Japan’s economic recovery could hit a rough patches if the government fails to manage demographic change carefully, or should it use contractionary fiscal policy restrict demand. I would add to this mix the consequences that could result from the BoJ’s raising interest rates preemptively.

Resurgent Japan — perhaps playing the role of Amaterasu in this tale — has emerged from its cave, once again shedding its radiance on the regional and global economies. But Japanese policymakers must be careful to ensure that stormy Susanoo does not lead Amaterasu to retreat back into her cave.

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