In 2002 I stood almost alone among international observers ofthe Japanese economy in predicting that Japan's future was stillbright--and that three percent economic growth was quite attainableover the next few years. Some, especially the prophets of a rapidJapanese meltdown, Argentina-style, mocked this prediction. Otherswere simply skeptical. But suffice it to say, the Japanese economyhas now shown eight straight quarters of economic growth. Annualreal growth in the third quarter of 2003 was at 3.3 percent--and anastonishing 7.5 percent in the last quarter--beyond my guardedlyoptimistic estimate. While Japan faces real problems--which havebeen discussed in these pages in past issues--they are far frompermanent. And economic data have clearly shown that the pessimistsare wrong. Japan is moving in the right direction, and growth islikely to be sustained for the next few years, barring aninternational convulsion.
Key to Japan's re-emergence is the fact that throughout Japanesehistory, determined leadership has arisen in response to crises,reshaping the nation's destiny. The impetus for change has broughtabout a turning point, allowing Japan to exit the counterproductivecycle of deflation, fiscal imbalance and public sector growth forstructural economic reforms that will return Japan to anentrepreneurial society ready to reassert a leadership role in Asiaand the world.
The institutional logjams affecting Japan both in the corporateand government sectors are well known. For now, though, it is clearthat Japanese companies have begun to take the bitter medicine longprescribed by global investors. Firms have been buying back theirown stock and some are consolidating through mergers orrestructuring. Capital investments made, particularly in themanufacturing sector, are beginning to pay off.
