Address to Asia Society Australasia Centre Annual Dinner
"East Asia and The Pacific in C21"
A view from Singapore
Mr Morgan, thank you very much for your very generous introduction. Excellencies, ladies and gentlemen, it is my great honour and pleasure to be able to be here as a guest speaker at the Asia Society AustralAsia Centre.
My mission tonight, as I understand it, is to talk to you about how the Japanese economy is faring today, and what it will look like, and if time allows, maybe a few comments about the political situation, and if even more time is available, maybe talk about the external relationship with major trading partners, particularly China.
I'm not at all certain whether I can manage all that, so at the very beginning, at the risk of perhaps being too brief, I will just outline a couple of conclusions and as you probably noticed when our Prime Minister spoke; maybe he was different when he spoke here, but usually when he speaks in Japan, he loves to speak in simple short sentences. I'm not trying to emulate Mr Koizumi, but just a few conclusions first.
The Japanese economy is at the moment in a plateau, but I think it is going to be temporary; fundamentally because the upswing of the Japanese economy that we have been experiencing since 2002 is fundamentally based on a number of structural changes that have taken place, both in the manufacturing and service sectors. But one big question mark is that, as you all know, the economy has been helped a great deal by the very strong economies in China and the United States. So of course we all share some questions about the US economy, their twin deficits, where the dollar will go relative to the yen or euro. But, if these economies stay relatively healthy, the Japanese economy will come out of the plateau fairly quickly, and from the latter half of 2005, my sense is that economic growth will be somewhere in the range of 2-3%.
Secondly, the structural changes. We all know and you all know what was described as “the Lost Decade,” which came to Japan immediately after the burst of the bubble. We lost many things, but at the same time we learned a great deal, among which probably a lot of Japanese businesses learned how to get back to the fundamentals. The manufacturing sector has come down to a much lower break-even point. But during the course of restructuring, this is probably very important in the long run, Japanese society, including the trade unions, learned that we will never go back, at least in the foreseeable future, to the days of enjoying 2% or even lower unemployment rate. 4% is probably reasonable; we may experience probably the higher end of 4% or lower end of 5%, and that by itself will not be fatal. This is a very important lesson that the Japanese society learned during this whole process.
Also the financial sector, particularly banks, used to enjoy an almost unchallenged position in the Japanese economy. They had to go through very difficult lessons, of making their business model more viable in the international economic situation, and I think they had gone through a very difficult, harsh time of people almost looking down at banks, as if to say "they are the wrong people to deal with". But now they are back, I think their non-performing loans are almost non-existent, and they are working on the regrouping of banks in order to achieve internationally competitive, more viable business models. This will take a little more time, but I think they are on the right path. Also, something that has finally happened is the arrival of the venture capital business. They had been with the Japanese economy for a long time, but this last year was very interesting - I'm almost sure that almost every single Japanese watched the reorganizing of the professional baseball league. It ended up by having two champions of the venture capitalist game owning - one owning an old and very strong team... actually the champions of the last year, that's Mr Son of SOFTBANK, and the other one - Mr Mikitani of Rakuten - owning a brand-new baseball team out in Sendai. Now many of you probably know Miyauchi-san of Orix: he serves on my board, and we are good friends, although in some ways arguably different; but when he originally owned the baseball team, Orix, there were many shaking heads in the old establishment of the Japanese business, asking what business Orix has in owning a baseball team: this was the world of railroads, newspapers, the establishment, and Orix was just too new. But the world has changed a great deal. Now Miyauchi-san is on the side of the establishment, shaking heads about the venture capitalists coming in. I think society welcomed it. To a certain extent I'm exaggerating, but to me it was almost a symbol of the Japanese economy, Japanese society coming to accept some of the fundamental changes, like the unemployment rate, like venture capitalists coming in.
Now of course this baseball team, which is now owned by Mr Son, was previously owned by Daiei, one of the biggest supermarket chains in Japan. When Mr Nakauchi founded Daiei, it was almost a wild phenomenon that this man from nowhere was buying into the world of retail, selling everything below cost. When Daiei grew to a certain stage and his name was up for vice-presidency of the Keidanren, the head of Keidanren said "Who is he?” His business had no place in Keidanren. After that, his business went all the way up, and now his business is down and in the process of restructuring. The baseball team he loved is now going to be owned by Mr Son.
I think I am simplifying the whole issue, but the message is: the Japanese economy and Japanese society are going through a very important and very interesting changing process. My feeling is, compared to the beginning of the 90s when the bubble burst, the Japanese economy is stronger, more flexible, and I think there's a lot of opportunities for Australian capital among other non-Japanese companies to come in and explore. I must say our Prime Minister has played a very major role in real and symbolic terms, in making changes in the Japanese economy. Professor Takenaka, who has stayed close to his wing, not only in advising but in spearheading the restructuring process, has also played a very important role. Mr Koizumi will leave the Prime Ministership if he completes the term in about two years, and what he has done in making this restructuring stick in Japanese society is something that he can be proud of the rest of his political life.
Now, our two countries, as Mr Morgan mentioned, have enjoyed a long and mutually beneficial relationship, and also not just beneficial bilaterally, I think we have played on many occasions a very proud role of making our region more productive and interactive with the others. And Australia has played a very, very important role in taking the leadership in many of these developments. We have come a long way, and we very much look forward to the visit of Prime Minister John Howard in April on the occasion of the 2005 World Exposition in Aichi, and next year, 2006, is designated as the year of exchange to commemorate the 30th anniversary of the signing of the Basic Treaty of Friendship and Cooperation in 1976. The responsibilities that Australia and Japan commonly share as two leading democratic nations in the Asia-Pacific region have not really lessened, but I'm sure they will simply continue to increase and bear greater importance.