26 October 2016
Japan’s unemployment rate is at a 20-year low of 3.1 percent. Photo: Bloomberg
Japan’s unemployment rate is at a 20-year low of 3.1 percent. Photo: Bloomberg

Why China could be Japan’s economic salvation

We have experienced so many unexpected developments lately.

The market has been anticipating four rate hikes in the US but the Fed has been delaying the action.

The Brexit vote in June surprised global markets but equities have since rebounded, even hitting new highs.

The global financial market has performed much better than expected, although the British pound remains under pressure.

In fact, Britain’s political and economic situation is fairly stable and the transition to a new government is proving much faster than expected.

The Brexit process itself could take some time.

That would give Britain enough room to negotiate free-trade agreements with individual European countries.

Brexit may not be such a bad thing after all.

It could prompt the European Union to accelerate reform to cement continental Europe and tackle key issues such as the economy, refugees and terrorism.

Meanwhile, investors have been scratching their heads over Japan’s less-than-expected stimulus package.

The market was expecting Japan to expand its monetary stimulus to 18 trillion yen (US$178 billion) and cut interest rates further.

But from another angle, it could mean things are not that dire in Japan.

After all, the country’s unemployment rate is at a 20-year low of 3.1 percent.

Japan has been using a weak currency to boost exports for more than two decades. However, the pay-off remains questionable.

Perhaps, the Switzerland way is a better model for Japan.

Switzerland focuses on good-quality products that command premium prices.

Japan is also an exporter of high-end products and services. By following the same path, Japanese exporters can avoid price competition and achieve fatter margins.

Meanwhile, Japan is considering 50-year bonds to boost pension funds and insurance companies.

The move could also help raise massive low-cost capital and support Shinzo Abe’s stimulus program.

The Japanese economy can do even better if it taps the mainland Chinese market.

It’s common knowledge that spending by Chinese tourists in Japan has been soaring in recent years.

Demand for Japanese products by Chinese consumers is so strong numerous e-commerce platforms, including Alibaba’s Tmall and Amazon, have set up specific pages but Japanese companies don’t seem to have made enough effort to reach out to mainlanders.

It’s about time Japan realized that the Chinese market could be the solution to its decades-long economic stagnation.

This article appeared in the Hong Kong Economic Journal on Aug. 4

Translation by Julie Zhu with additional reports

[Chinese version 中文版]

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Founder and Managing Director of Pegasus Fund Managers Ltd.

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