One of the world’s most homogeneous nations is opening up to foreign trade, tourists and even migrants. But Tokyo needs to push the policy harder


NOVEMBER 19, 2018

Japanese policymakers often seem like the economic equivalent of Winston Churchill’s take on Americans that they can be counted on to do the right thing after exhausting all other possibilities.

There’s nothing new or innovative about Prime Minister Shinzo Abe’s revival scheme. Abenomics is merely a list of reforms Tokyo should have tackled 20 years ago. Instead, they exhausted every possible alternative, often several times, until delay was no longer an option.

Now, Abe, head of a homogenous, but a fast-aging nation, is left with reality. Hence, his sudden embrace of immigration – something his Liberal Democratic Party avoided aggressively for decades.

Also, the attachment of his signature to free-trade agreements that his formerly protectionist economy avoided. Not to mention massively upgrading inbound tourist numbers, not least by hosting the 2019 Rugby World Cup and the 2020 Olympics.

So, is Japan really ready to open up? Well, it’s complicated.

Japan opens gates

On paper, the LDP has no choice. Asia’s No. 2 economy is literally running out of workers. Even a 2.3% unemployment rate masks the magnitude of the problem. In 2019, Japan is expected to be short of more than 600,000 workers. Another recent milestone: one-fifth of Japan’s 126 million people are 70 or older.

These also are heady times for tourism. In 2017, a record 28.7 million people visited Japan, a 250% jump since 2012. Those foreigners spent $42 billion. And that’s just the beginning, considering Japan is hosting the Rugby World Cup next year followed by the 2020 Olympics. Tokyo hopes to welcome 40 million visitors annually by then.

But tourists leave. The inward flood of workers Abe wants to welcome is inspiring handwringing among conservative lawmakers. And Abe is conservative.

Look no further than his obsession with revising the pacifist Constitution to enable Tokyo to field a conventional military once again. Or his government’s outrage over South Korea’s Supreme Court ruling, essentially, that Japan Inc. should compensate forced World War II laborers.

But despite his conservatism, he is bowing to economic realpolitik as China’s dominance grows. And that means that a closed-in Japan is no longer an option.

To open a formerly notoriously closed local market, he cajoled the LDP to join the Trans-Pacific Partnership and signed a giant free-trade deal with the European Union. Again, things Tokyo should’ve been doing decades ago, but it’s good nonetheless that Japan is opening up.

Shrinking labor pool

Only within reason, though, as evidenced by the LDP’s timidity on immigration. It’s grand, of course, that Abe’s party is targeting more than 345,000 blue-collar foreign workers to support a shrinking labor pool. The bad news: the inflows will be spaced out over five years.

That is too gradual to enliven national output and productivity. Nor is it remotely sufficient to make up for the projected shortfall during that five-year period — between 1.3 million and 1.35 million workers.

Take the nursing industry, which is projected to see the largest infusion of foreign talent. Given the rapid graying of the population, 50,000 to 60,000 hires over five years are a drop in the proverbial bucket. The same with the restaurant industry, seen importing between 41,000 and 53,000. The construction industry’s share — between 30,000 and 40,000 — will be far short of today’s staffing needs, never mind in 2023.

The problem, of course, is public opinion. Japan remains among the most homogeneous developed nations because most voters like it that way. Too many gaijin, opinion surveys find, makes Japan less safe, less predictable and less cohesive.

Less than five years into its tourism boom, cities like Kyoto are experiencing pushback. Municipal officials have ordered up a series of “over tourism” studies.

Cultural strains

Abe needs to sell his people on the merits of opening up. Media reports about Abe’s worker visa estimates have largely focused on the dark side: a potential spike in crime; jobs stolen from domestic workers; cultural strains; abuse of the healthcare system.

Using his bully pulpit, Abe should make the case that change is needed to protect Japan’s high living standards. It won’t be easy, according to Hifumi Okunuki, executive president of Tozen Union, who called the gamble “Abe’s tightrope walk.”

Yet Abe’s party needs to raise its own expectations, policy-wise.

For starters, the LDP is already erring by placing firm caps on inflows. It is exacerbating the mistake by introducing two rather limited visa categories. Category 1, for lower-to-modestly skilled workers, limits one’s stay to five years. Nor does it allow accompanying family members.

Category 2, for the highly skilled, is more permissive – longer stays and families can join them. But it comes with Japanese language requirements, which is sure to make Hong Kong and Singapore more appealing for many potential expats.

That, along with myriad challenges foreigners face starting new companies in Japan, probably won’t do much to increase Tokyo’s attractiveness as a business hub.

One of the first tasks for any foreigner setting up shop in Japan is grasping the concepts of honne and tatemae. The former is what a politician really thinks; the latter a sugar-coated, politically-correct version of an idea of policy. Observers like Jeff Kingston, director of Asian studies at Temple University’s Tokyo campus, smell more of the latter than the former in the LDP’s immigration push.

“Japan,” Kingston said, “is improvising a policy designed to avert having large unassimilated foreign enclaves.” The trouble is, he added, “without them, Japan’s economic prospects are bleak.”

One problem is debt. Tokyo must somehow service the largest debt burden in the developed world with a shrinking, aging population. Without increased immigration or sizable increases in birthrates, Tokyo is courting future credit downgrades.

The Bank of Japan is delaying that dynamic by buying up $5 trillion of government IOUs, a hoard bigger than the nation’s annual gross domestic product. It’s not a long-term solution, though.

Such long-term concerns collide with growing headwinds in the short run. The economy shrank by an annualized 1.2% between July and September. Though Tokyo blames typhoons, earthquakes and the global trade war, the economy is vulnerable because Abenomics put few reform wins on the scoreboard.

Since December 2012, Abe has focused more on the symptoms of Japan’s malaise than the underlying causes. He hired an ultra-easy-money central bank head, loosened fiscal stimulus and pledged supply-side remedies to deflation that Tokyo put off for decades.

In general, though, Abe has slow-walked structural changes to make Japan more competitive, innovation and meritocratic.

In recent days, Abe has even floated the return of huge 1990s-style public works projects to boost growth. The rationale being that “concrete economics” is preferable to taking on powerful vested interests and upending the status quo.

The good news is that Abe is also bowing to financial and demographic realities and welcoming more foreign workers. Here again, we see Tokyo doing the right thing, after exhausting all other possibilities. But in order to make immigration work for Japan, it needs to work harder to put out the welcome mat – and keep it there.

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