Economic Outlook: Japan’s new path

The head of the victorious Democratic Party of Japan downplayed his negative pre-election comments on American-styled capitalism a day after the election.

In a widely circulated editorial written before the vote, Yukio Hatoyama referred to capitalism as void of morals or moderation.

On Monday, after his opposition party won 308 seats in Japan’s lower house, wrestling power from the Liberal Democratic Party for only the second time since World War II, Hatoyama said in a newspaper interview that the editorial did not present an anti-American way of thinking over all, The New York Times reported Tuesday.

It is, no doubt, a perilous argument to make in an export-oriented economy that the country’s No. 1 customer represents degradation and immorality, even during an economic crisis.

We’re in the midst of an economic crisis, and there’s a feeling that the crisis originated in the United States, and it was the fault of American policy makers and that the countries are paying the price of policy errors, Steven Vogel, a political science professor at the University of California, Berkeley told The New York Times.

There you have the makings of a very appealing political platform, he said.

It is a case, in part, of the-bigger-you-are, the-harder-you-fall. The Japanese economy was, relatively speaking, crushed with an 11.7 percent contraction in the first quarter — compared to a 6.4 percent drop in the United States. In Japan, the 5.7 percent unemployment rate sounds low by U.S. standards, where unemployment is 9.4 percent. But, 5.7 percent is a record for Japan and would be far higher if not for subsidized employment, a recent Nomura Securities report said.

As the world’s second largest economy, if a U.S. customer hesitates, it could well affect someone in Japan.

It is unlikely, however, that the new ruling party in Japan is out to undermine Japan’s international successes, such as Toyota Motor Co., Sony Corp., Honda Motors, All Nippon Airways, Sansui, or Sapporo Beer. But the Democratic Party has pledged to focus on Asian markets and pull back from reforms that helped push the country’s economic growth since World War II, the Times said.

Reform has become a bad word. Japan is now more reluctant than ever to use market forces to raise productivity, said Richard Jerram, chief economist at Macquarie Securities.

The market reaction was quick and curious. The Nikkei 225 average pushed to an early spike Monday, then settled down to a modest loss. On Tuesday, the Nikkei index bounced back, gaining 0.36 percent.

The Hang Seng index in Hong Kong rose 0.75 percent Tuesday. The Singapore Straits Times rose 0.13 percent.

In midday trading in Europe, the FTSE 100 index in London fell 1.19 percent. The DAX 30 in Frankfurt lost 1.36 percent. The CAC 40 in Paris slid 0.83 percent, while the DJStoxx 600 dropped 1.09 percent.