Exchange Rate and Talent Shortage (1)

Currently, the Japanese economy, although it has been maintained at a certain level, has essentially been unable to escape the 20-year long deflation. The weak yen in the past couple of years prompted an increase in foreign visitors to Japan, which led to the good performance for the tourism industry, such as hotels, and commercial and service sectors dealing with department stores, specialty shops, etc. Major manufacturers, supported by good exports, showed good results for the fiscal year ending in March.

However, the unstable crude oil prices, global economic environment impacted by the slowdown of China and the U.S., European immigrant crisis, and increasingly unstable political atmosphere of the Middle East do not inspire lot of confidence in Japanese companies. The reality is, our world is plagued by the spread of uncertainty. The suffering from the 2011 Tohoku earthquake and the Kumamoto earthquake of April 2016 was unimaginable.

After the Kumamoto earthquake, Japan received relief funds exceeding ¥50 billion from U.S., Europe, Asia, etc., and in addition, support was rendered from developing countries such as Bangladesh, and for that we would like to express our sincerest gratitude. At the same time, we would like to thank all the foreign volunteers, majority of them coming from Asia, helping our recovery efforts.

Even if we were to make exceptions of the recent events, the Japanese economy is facing a fundamental problem. First, Japanese corporations are suffering, and will continue to suffer, from chronic shortage of talent. Second, to sum it up, the exchange rate instability, along with other factors, is shaking the industrial structure of the Japanese economy itself.

It is indisputable that Abenomics has had a certain amount of effect. But decreasing birthrate and aging population plus depopulation accompanied by shrinking of the domestic market coupled with shortage in government revenues are causing a shift in the landscape of not just the Japanese economy as a whole, but the entire society. All over the country, micro businesses and small and medium-sized businesses, especially family owned stores, are clearly on the verge of shutdown. Major firms, instead of “labor” shortage, are facing “talent” shortage.

Lack of labor is a matter of “number” of the labor force as a whole, but lack of talent is a matter of “quality” of the people working. Firms are facing not only shrinking domestic market from decrease in birthrate and aging population, but lack of talent for their business in many industries. It is clear how the decline in number can lead to decrease in quality, but this is also an issue that casts a doubt over the high quality and high reliability, which were the pillars of the Japanese economy in the past.

The instability of exchange rate did turn favorable for exports due to weak yen, yet weak yen raised the cost of energy/oil with regard to electricity, which reduced profitability. Further, small and medium-sized businesses without exports failed to benefit from it, and for them, the only difference was rising costs. As a result, the formerly win-win cooperation between major firms and small and medium-sized businesses, which was the beauty of Japanese industrial structure, collapsed, thereby distorting the distribution of wealth.

This talent shortage and shift in industrial structure further exacerbate the imbalance between the industries that should be growing and talent that should be propelling them. In summary, the path of survival for Japan is for individual companies to overcome these problems instead of relying solely on national policy.