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No. 2 — January 15, 1999

 

Feature Article

UNEMPLOYMENT IN JAPAN: HOW SERIOUS IS THE PROBLEM? by Douglas Ostrom

Summary

For decades, Japan has been in the enviable position of consistently having one of the lowest rates of joblessness in the industrialized world. Late 1998 announcements revealed, however, that Japanese and American unemployment was, by conventional measures, an identical 4.4 percent in November. In mid-January, the Department of Labor reported that the U.S. rate had dropped to 4.3 percent in December. While joblessness in Japan still is surprisingly low in light of the country's sluggish economic performance in the 1990s, the share of the labor force without work has reached the highest level of the postwar period. Not a few analysts predict that the figure could be headed much higher, perhaps to European levels, which far exceed those of the United States.

The rise in joblessness that began in Japan in the early 1990s has affected both men and women across all age groups. Although most experts believe that Tokyo's assessment of unemployment is accurate, many analysts on both sides of the Pacific argue that it is not an adequate yardstick with which to gauge the health of the labor market. Other, more inclusive, measures suggest that at least 10 percent of the potential Japanese labor force cannot find meaningful employment.

Unemployment insurance in Japan has been praised in the past for not interfering with the role of market forces and for, in fact, keeping unemployment low. In the context of Japan's protracted downturn, however, labor market experts are expressing increased concerns about the program — both its limited impact as an automatic stabilizer that could play a role in the economy's recovery and its adequacy as part of the social safety net designed to protect workers facing economic difficulty.

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Weekly Review

YEN'S COURSE CORRECTION IN 1998 CARRIES OVER TO NEW YEAR by Douglas Ostrom

Whether the yen was up or down in 1998 depends on the point of view. On average, it lost ground against the dollar (see Table 1), suggesting that the enyasu (weak yen) story that began in 1995 continued unabated. However, the last four months of the year told a different tale. Highlighted by October 7's remarkable surge of 7.9 percent (see JEI Report No. 39B, October 16, 1998), the Japanese currency appeared by yearend to have reversed course, closing December 31 at ¥113.5=$1.00 — a big jump from the ¥130.5=$1.00 recorded a year earlier. Read as a whole, Table 1 suggests that momentum is a powerful factor in the movement of the yen/dollar exchange rate. With few exceptions, the yen has gone up, then down and now up again since the advent of the Clinton administration in January 1993.

 

JAPANESE EQUITY MARTS ENDURE "ANNUS HORRIBILUS" IN 1998 by Jon Choy

In the face of a seemingly endless litany of bad economic news, it is not surprising that Japanese stock prices — as measured by the Nikkei average of 225 shares traded on the first section of the Tokyo Stock Exchange — fared poorly in 1998. Inevitably, the occasional morsel of good news was swallowed up by the bearish events that followed. Investor psychology became desensitized to Tokyo's efforts to pull the economy out of its tailspin, but it was extremely reactive to such other factors as swings in the yen/dollar exchange rate (see previous article) and the banking industry's continued ills. Finding a silver lining in the dark storm clouds that enveloped Japanese equity markets in 1998 is no easy task. Perhaps the best thing to be said about the trading year was that prices could have fallen even further. Investors, in fact, showed more resiliency than might have been expected after eight years of mostly negative economic developments.

 

LDP, LIBERAL PARTY NARROW SECURITY-RELATED POLICY DIFFERENCES by Barbara Wanner

By the end of the first full week in January, the pending union of the ruling Liberal Democratic Party and the Liberal Party seemed more on than off, illustrating yet again the extreme fluidity and unpredictability of the current Japanese political scene. The two conservative parties had made a deal November 19 to form a governing coalition before the January 19 start of the regular Diet session but, since mid-December, prospects for their alliance had grown increasingly dim. Each side had stubbornly refused to compromise on key national security-related matters, among other policy issues. The Liberal Party, the third-largest in the opposition camp (see Table), also reportedly was unhappy with the post it had been offered in a reshuffled cabinet (see JEI Report No. 1B, January 8, 1999).

 

JAPAN FLIP-FLOPS ON RICE IMPORTS by Susan MacKnight

Six years ago, tariffication — the conversion of quotas, bans and other nontariff barriers into duties that are applicable to imports above a base volume — was such a politically paralyzing concept in Japan that Tokyo came dangerously close to being blamed in the court of world opinion for causing the collapse of the Uruguay Round of multilateral trade negotiations over its refusal to open the country's big rice market on these terms. In the end, Washington saved Tokyo from that fate. It crafted a special liberalization formula for Japan that a political establishment beholden to agricultural interests could more easily sell as compatible with Tokyo's long-standing policy of self-sufficiency in rice (see JEI Report No. 2A, January 14, 1994).

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