Asia needs its own monetary fund By Martin Wolf Published: May 18 2004 20:49 | Last Updated: May 18 2004 20:49 Asia - by which I mean east and south Asia - contains 55 per cent of the world's population, its most dynamic economies, its fastest-growing trade, its highest savings rates, most of its biggest current account surpluses and its largest stocks of foreign currency reserves. It now needs to accelerate regional trade and monetary co-operation.
Start with trade. In the 12 months to November 2003, the economies of developing Asia sent 40 per cent of their exports to other Asian developing countries and 10 per cent to Japan. Japan sent 45 per cent of its exports to developing Asia, against 25 per cent to the US and 16 per cent to the European Union. Even China, which sent 27 per cent of its exports to the US, sent 31 per cent to developing Asia and another 13 per cent to Japan.
This then is already a highly integrated region. But some of the current plans for sub-regional preferential trading arrangements endanger its efficient integration of production. What is needed instead is a single free trade arrangement covering the entire region. This should then become the basis for a global move to free trade among market-oriented economies.
Now turn to money and finance. Today, Asian governments are exporting astonishing quantities of capital, overwhelmingly to the US. This is not just absurd. It is also economically destabilising.
In 2002 and 2003, the principal economies of the Asian region ran a combined current account surplus of $540bn, of which $249bn was Japan's. This aggregate surplus covered more than half of the cumulative US current account deficit of $1,023bn. It would be natural to assume that these huge current account surpluses were the means through which the region exported its excess private savings. But most Asian economies have not been net exporters of private capital.
In aggregate, the net capital inflow into the principal economies of the region was $178bn. Hong Kong and Singapore had large net capital outflows, and there were also small net outflows from Malaysia, Thailand, Indonesia and the Philippines. But Japan, China, Taiwan, India and South Korea all had sizeable net capital inflows. These governments have then taken all the money earned from the current account surpluses, plus the net capital inflow, and sent it back as official reserves. That is why the gross reserves of these economies rose by the astonishing total of $718bn over these two years.
Why did Asian governments behave in this way? The answer is that they wished to avoid a collapse of the US dollar. They feared a collapse for several reasons: it would have generated additional deflationary pressure, particularly important to Japan and China; it would have undermined their export competitiveness; and it would have reduced their current account surpluses or even generated sizeable deficits, rendering them vulnerable, they feared, to another financial crisis.
This recycling of the foreign currency pouring into the region creates a certainty, a probability and a risk. The certainty is that these countries lose a great deal of money, since the cost of the capital entering the country substantially exceeds the return on the foreign currency reserves. The probability is that they will lose still more when the dollar falls: if it were to fall by 25 per cent, the aggregate losses on Asian foreign currency reserves would exceed $500bn. The risk is that this huge increase in the monetary base will generate - indeed, already is generating - destructive asset price bubbles and ultimately inflation.
It makes no sense for a region with huge current account surpluses and foreign currency reserves to be so desperate to avoid international financial crises. The US should feel vulnerable instead. A step towards reducing the region's perceived vulnerability would be to create a large Asian Monetary Fund. Armed with this insurance, Asian countries could allow their exchange rates to appreciate, generate greater internal demand and then run current account deficits. This would generate global balance of payments adjustment. Moreover, if Asians do wish to lend money generously, why not benefit their own people rather than Americans?
Preliminary steps have been taken, notably through the Chiang Mai initiative, agreed in May 2000, which created bilateral swap arrangements worth $40bn. But the aim should be to create a fund with at least 10 times as much money, which would still absorb only a fifth of the region's currency reserves. Such an institution would need to undertake forthright surveillance of the members' economies. Initially at least, this job could be subcontracted to the International Monetary Fund.
With total resources of about $316bn, the IMF is too small to be relevant to the region's larger economies. Moreover, by their arrogant narrow-mindedness over the appointment of the managing director, the Europeans have (together with the Americans) demonstrated once again their determination to keep the IMF under their thumb. It is unlikely that they would accept a large expansion in Fund resources, since this would certainly require a sizeable reallocation of quotas and so of power inside the institution. Today, tiny Belgium, with no currency of its own, has a bigger quota than India. That makes no sense at all.
If the Asian region is to absorb more of its own savings internally, it also needs to develop efficient capital markets. But the immediate priority is to halt the inordinate foreign currency reserve accumulation. The lead has to come from China, whose exchange rate against the dollar has been completely fixed. Once the renminbi appreciates, most of the other currencies in the region can, and should, follow. The next step could be the choice of a common basket peg among the most internationally integrated economies.
A cessation of its open-ended lending would be good for Asia itself. It would also be good for the US. While the huge current account deficits are helping the US avoid a choice between guns and butter today, they will ultimately generate a dollar crisis. Correction of these deficits, through Asian currency adjustment and greater reliance on internal Asian demand, would help - indeed force - the US to put its macroeconomic house into order. A de facto Asian secession from the IMF would also teach Europeans an invaluable lesson in humility.
Asia should dare to take a big leap forward in trade, monetary and financial co-operation. Americans and Europeans may not like the results. They will have to live with them.
ジャスパー・コール氏によれば、岩田副総裁は、『an aggressive and outspoken intellectual, who had long been critical of the BoJ's restrictive policies』ということだ。本op-edはWSJに掲載された小泉政権3年間のレビューなので、それなりに重みのあるop-edということになるだろう。
COMMENTARY Koizumi's Third Anniversary
By JESPER KOLL
April 23, 2004
Monday marks the third anniversary of Japanese Prime Minister Junichiro Koizumi taking office. Three years marked by an impressive track record on macroeconomic policy management, which deserves much credit for pulling Japan out of deflation. But three years that have so far seen Mr. Koizumi fall short on his promises of structural reform -- promises that now need to be pushed to the forefront of his policy agenda for the coming year.
Politicians the world over have two tools of power: allocating money via the budgetary process, and allocating people to positions of power through their powers of patronage. On both counts, Mr. Koizumi scored top marks during his first three years. He radically changed the way taxpayers' money is allocated in Japan -- cutting investment in public works by about 20%, or 1% of the country's gross domestic product. That was a salutary lesson to Japan's well-connected construction industry, which thought it had become politically invincible as it fed on the trough of never-ending supplementary spending packages throughout the previous decade.
But the fight against entrenched vested interests would never have been won without some strategic appointments. Remember the outcry from the Liberal Democratic Party old guard when Mr. Koizumi appointed his first cabinet three years ago? Instead of choosing ministers based on the traditional system of considering their seniority and factional interests in the LDP, the prime minister handpicked those personally loyal to him. What's more, he announced they would be personally responsible for progress in implementing reforms in their ministries. That amounted to a revolution by Japanese standards, transforming ministers from ceremonial appointments into real positions of responsibility.
Mr. Koizumi's appointment of Heizo Takenaka as minister of economic and fiscal policy put a competent outsider in charge of budgetary allocations, blocking out the LDP old guard. And when vested interests in the banking industry used their influence over the Financial Supervisory Agency to continue to resist reform, instead of backing down, in September 2002 Mr. Koizumi added responsibility for running the agency to Mr. Takenaka's portfolio.
That cleared the way for a reversal in banking and monetary policy, as the Bank of Japan embarked on an unprecedented wave of monetary easing, accompanied by swift capital injections into the weaker banks. In other words, while the construction industry's budget was being cut, the funds available to the banks were increased. That quickly began to yield results. Within months of Mr. Takenaka's additional appointment, bankruptcies -- which had been on the rise for more than three years -- began to drop, a clear sign of credit easing.
Mr. Takenaka and other key economic advisers -- including the U.S. government -- had long argued that Japan must loosen its monetary policy in order to pull out of deflation. The BoJ had traditionally resisted for two reasons. Firstly, that a tight credit policy was needed to counteract the harm done by a loose fiscal policy that squandered public funds. Secondly, it argued that FSA inspections of banks were too lax to promote any real change in banking practices. While Mr. Koizumi's budget cuts removed the first concern, the second remained a sore point.
However, the BoJ did not get much time to evaluate its options. Instead Mr. Koizumi forced its hands with his March 2003 choice of Toshihiko Fukui as the bank's new governor. A 40 year veteran of the central bank more amenable to compromise, his appointment was coupled with the choice of two new deputy governors, Toshiro Muto and Kazumasa Iwata. Mr. Muto had been vice minister of finance for domestic affairs for three years, the post reserved for the most powerful financial-policy powerbroker. Mr. Iwata is an aggressive and outspoken intellectual, who had long been critical of the BoJ's restrictive policies.
With those appointments, the prime minister put in place a team to cast aside Japan's decade-long obsession with steady fiscal expansion and budget exuberance, coupled with tight money and banking policy. By April 2003, Japan was running with a hyper expansionary monetary and banking policy, while fiscal policy had become modestly restrictive. And that change in macro policy direction is working -- slowly but surely the Japanese economy is being pulled out of deflation, toward growth and inflation.
That macroeconomic success was primarily achieved by an unprecedented mobilization of monetary resources, with the BoJ buying equities, lending to small- and medium-sized companies, funding public-capital injections into the banks, as well as buying 40% of new treasury bonds.
But the irony is that's not what Mr. Koizumi promised to prioritize. When he came into office he committed to focusing on structural reform. His original slogan was, "no growth without fundamental reforms." And now that he achieved such success on the macroeconomic front, it is time to return to that original goal.
Mr. Koizumi should use the tailwinds created by the return of economic growth to promote real reform. Japan's labor market remains riddled with red tape and inefficiencies, it's service sector -- particularly the health-care industry -- is a quagmire of irrational and untransparent rules that protect incumbents and suppress innovation. And the effect of the public sector on the economy remains so enormous that so-called privatization of the postal-savings and fiscal-investment machine runs the risk of crowding out private enterprise, instead of promoting it. Japan's tax system also remains in desperate need of fundamental reform.
The end of deflation offers the chance to make a new beginning in forging more aggressive and proactive structural reforms that will build lasting prosperity in Japan.
Mr. Koll is chief Japan analyst at Merrill Lynch Japan.
May 14, 2004
A Crude Shock
By PAUL KRUGMAN
Sfar, the current world oil crunch doesn't look at all like the crises of 1973 or 1979. That's why it's so scary.
The oil crises of the 1970's began with big supply disruptions: the Arab oil embargo after the 1973 Israeli-Arab war and the 1979 Iranian revolution. This time, despite the chaos in Iraq, nothing comparable has happened — yet. Nonetheless, because of rising demand that is led by soaring Chinese consumption, the world oil market is already stretched tight as a drum, and crude oil prices are $12 a barrel higher than they were a year ago. What if something really does go wrong?
Let me put it a bit differently: the last time oil prices were this high, on the eve of the 1991 gulf war, there was a lot of spare capacity in the world, so there was room to cope with a major supply disruption if it happened. This time there isn't.
The International Energy Agency estimates the world's spare oil production capacity at about 2.5 million barrels per day, almost all of it in the Persian Gulf region. It also predicts that global oil demand in 2004 will be, on average, 2 million barrels per day higher than in 2003. Now imagine what will happen if there are more successful insurgent attacks on Iraqi pipelines, or, perish the thought, instability in Saudi Arabia. In fact, even without a supply disruption, it's hard to see where the oil will come from to meet the growing demand.
But wait: basic economics says that markets deal handily with excesses of demand over supply. Prices rise, producers have an incentive to produce more while consumers have an incentive to consume less, and the market comes back into balance. Won't that happen with oil?
Yes, it will. The question is how long it will take, and how high prices will go in the meantime.
To see the problem, think about gasoline. Sustained high gasoline prices lead to more fuel-efficient cars: by 1990 the average American vehicle got 40 percent more miles per gallon than in 1973. But replacing old cars with new takes years. In their initial response to a shortfall in the gasoline supply, people must save gas by driving less, something they do only in the face of very, very high prices. So very, very high prices are what we'll get.
Increasing production capacity takes even longer than replacing old cars. Also, major new discoveries of oil have become increasingly rare (although in my last column on the subject, I forgot about two large fields in Kazakhstan, one discovered in 1979, the second in 2000).
Petroleum engineers continue to squeeze more oil out of known fields, but a repeat of the post-1973 experience, in which there was a big increase in non-OPEC production, seems unlikely.
So oil prices will stay high, and may go higher even in the absence of more bad news from the Middle East. And with more bad news, we'll be looking at a real crisis — one that could do a lot of economic damage. Each $10 per barrel increase in crude prices is like a $70 billion tax increase on American consumers, levied through inflation. The spurt in producer prices last month was a taste of what will happen if prices stay high. By the way, after the 1979 Iranian revolution world prices went to about $60 per barrel in today's prices.
Could an oil shock actually lead to 1970's-style stagflation — a combination of inflation and rising unemployment? Well, there are several comfort factors, reasons we're less vulnerable now than a generation ago. Despite the rise of the S.U.V., the U.S. consumes only about half as much oil per dollar of real G.D.P. as it did in 1973. Also, in the 1970's the economy was already primed for inflation: given the prevalence of cost-of-living adjustments in labor contracts and the experience of past inflation, oil price increases rapidly fed into a wage-price spiral. That's less likely to happen today.
Still, if there is a major supply disruption, the world will have to get by with less oil, and the only way that can happen in the short run is if there is a world economic slowdown. An oil-driven recession does not look at all far-fetched.
It is, all in all, an awkward time to be pursuing a foreign policy that promises a radical transformation of the Middle East — let alone to be botching the job so completely.
Oil anarchy cannot be avoided
By Peter Odell
Published: May 13 2004 21:20 | Last Updated: May 13 2004 21:20
At $40 a barrel, the current oil price bears little relation either to the commmodity's long-run supply price or to any expectation of a boom in demand in the near future.
On the supply side, crude oil at little more than half that price would assure availability for both the short and the long term. In the short term, more than adequate production capacity already exists or can be developed quickly, while in the long term the ratio of the world's reserves to production currently stands at a record high of almost 45 years. In the 1990s, 37 giant new fields (each with at least 500m barrels of recoverable reserves) were discovered, offering a total of almost 37bn barrels of oil - of which less than 25 per cent was located in the Middle Eastern oil provinces. Over the same period, the incremental demand for oil amounted to barely 15bn barrels and demand growth was a mere 1.12 per cent a year. The world is still running into oil rather than out of it.
Not only is oil being used more efficiently, it is also being replaced by other energy sources - notably natural gas. The prospects for any significant resurgence in global oil use are remote, as zero or even negative growth rates among developed countries offset continuing increases in oil use by the Organisation of Petroleum Exporting Countries and by China and India. That is why analysts are wide of the mark when they "explain" high oil prices as a consequence of rising demand in a world of actual or prospective oil scarcity. Even so, when production, refining and marketing are temporarily interrupted, massive speculation on forward markets greatly exacerbates the volatility of traded-oil prices and the headlines appear to suggest an imminent crisis.
The underlying explanation for the current high barrel price lies in the aftermath of the 1997-98 oil market collapse. That posed a threat not only to the economies of Opec members but also to the political and economic stability of Russia and to much of America's own upstream oil industry.
The US had to intervene. It did so by successfully "buying off" the propensity of Opec's top three producers - Saudi Arabia, Iran and Venezuela - to expand their output and market share. By exercising its hegemony over the oil system, the US encouraged support for the price of between $22 and $28 a barrel that Opec wanted.
This development was widely welcomed. Joint - albeit surreptitious - monitoring of supply/demand relationships by Opec and the International Energy Agency quickly and effectively re-established market stability within the preferred price range. It was the first time these two previously antagonistic organisations had co-operated.
But subsequent political events, notably the attacks of September 11 2001 and Washington's decision to invade Afghanistan and then Iraq, have destroyed the basis for the accord. The near-elimination of Iraq's 2m barrels per day of oil exports is one reason. More important, however, has been the undermining of the powerful relationship between Saudi Arabia and America, following the emergence of Saudi citizens' involvement in the terrorist attacks of September 11 and the later exclusion of US companies from contracts to develop Saudi Arabia's large gas reserves.
Order has been replaced by disagreement and the open exchange of insults between Opec and the IEA over their claims on supply and demand. It is the inevitable confusion in a disorganised market that has led to the recent speculative boom in prices. But this boom will almost inevitably be followed by collapse, meaning that the oil price is likely to range between $10 and $50 a barrel over the rest of the decade.
We can ill-afford such anarchy in the market. But, except in the increasingly unlikely event of renewed US-Saudi co-operation, excessive price volatility and accompanying problems with security of oil supplies and oil markets seem unavoidable. One of the consequences will be a continued and accelerated decline in oil's contribution to world energy demand from the current level of 37 per cent. This is likely to generate severe problems for oil exporting countries.
One opportunity to ward off such danger comes next week at the first plenary meeting of the International Energy Forum for energy producing and consuming countries since the establishment of its permanent secretariat in Riyadh earlier this year. The meeting could conceivably generate some acceptable ideas about how to steady the oil market at a price of between $25 and $32 per barrel - but do not bet on it.
The writer is professor emeritus of international energy studies at Erasmus University, Rotterdam
この2004年の日本の金融政策・為替レート政策のレビューのようなop-edを黒田氏が執筆した。日銀にmore creativeになってより金融を緩和しろと言っている。ちなみに、5月13日から17日まで韓国でADBの総会があるそうだ。これに向けて、本op-edが書かれた穿っても仕方が無いかもしれない。興味深いことだが、黒田氏のADB総会でのペーパーのタイトルは、『Transitional steps on the road to a single currency in East Asia』である。そこまで考えてこのop-edが書かれたとしたら、う～ん深い、、、のかなぁ。
Japan needs creative strategy
By Haruhiko Kuroda
Published: May 10 2004 19:27 | Last Updated: May 10 2004 19:27
It is worth considering the direction of Japanese monetary policy and exchange rate management in light of the dollar's climb yesterday to an eight-month high against the yen after a sharp 5 per cent slide in the Nikkei stock index.
While major markets are now primarily concerned with the likelihood of US interest rate rises, decisions taken in Tokyo have some bearing on exchange rate and interest rate movements around the world.
The relationship between Japan's monetary policies and exchange rate management is unique; the two are interwoven and inseparable in the Japanese domestic context, where short-term interest rates are at zero and price deflation persists.
When Toshihiko Fukui assumed the governorship of the Bank of Japan in April last year, he faced immense difficulty; the economy was weak, the Nikkei index was way below 8,000 points and deflation was in its fourth year. But in the course of just one year, the economy grew steadily, gaining about 3 per cent, and the Nikkei average reached 12,000 before Monday's fall to below the 11,000 level. While deflation persists, it has slowed.
Japanese monetary policy, led by an active central bank governor, has contributed to the sea-change in the zero interest rate climate, but it has done so in conjunction with the government's robust exchange rate management.
Along with persistent deflation, the likelihood that Tokyo's currency intervention will continue to dwindle puts further pressure on the central bank to consider other, more innovative ways for future monetary easing.
The dollar-yen rate, which hovered around ¥120 to the dollar for nearly one year and now stands at around ¥113, started to slide from May last year - and only Tokyo's heavy intervention halted further decline. From September, however, Tokyo's increasingly concerted intervention appeared unable to halt the dollar's freefall.
Amid market expectations of further depreciation of the dollar in view of America's worsening twin deficits, in its trade and fiscal accounts, the US currency hit Y105 in January.
The Japanese government spent about ¥7,000bn on intervention to support the dollar from April to August last year. From September to March 2004 alone, that amount nearly quad- rupled to just under ¥26,000bn spent in efforts to arrest the dollar's slide.
The effectiveness of Japan's intervention efforts declined sharply from September 2003. At the same time, however, the country's economic recovery gained momentum.
The recovery fuelled calls for a change in Japan's exchange rate management - in short, an end to its massive intervention. It should be noted, however, that if Tokyo's intervention had been smaller, the yen might have appreciated far more than it did - thus worsening deflation and choking off the recovery. In any case, as US growth - forecast at about 4.5 per cent this year - is likely to far outpace Japan's growth and interest rate differentials are likely to widen, the dollar may recover further in coming months. As a result, large-scale intervention by Tokyo may no longer be needed. Indeed, in April, a month when for the first time in more than a year the government did not intervene at all, the dollar recovered to about ¥110.
In the past year, the BoJ has aggressively pursued monetary easing by substantially raising the target of commercial banks' current deposits at the central bank. The target was first raised to ¥17,000bn-¥22,000bn in April last year, from ¥15,000bn-¥20,000bn. Under the new governor, it was increased twice to ¥27,000bn-¥30,000bn last May. This made sense given that the government's massive intervention was not "sterilised", or neutralised by corresponding market operations. Thus the effectiveness of intervention was strengthened while monetary conditions were relaxed through yen liquidity released through the intervention. After initially aggressive monetary easing, the bank became more cautious toward September, but in the face of a rapidly appreciating yen, it expanded the target for deposits by commercial banks twice more, to ¥30,000-¥35,000bn in January 2004.
Now, if deflation disappeared there would be no debate - and no need - for further monetary easing. But that is not likely at this point. The real issue, if Tokyo's intervention practices are to end, as we saw in April, amid persistent deflation, is that the BoJ will simply have to be more creative to ease monetary conditions. The rest of the world, meanwhile, would do well to support Japan in this regard.
The writer is special adviser in the office of the Japanese prime minister and professor at the Graduate School of Economics, Hitotsubashi University
Gray Newman and Luis Arcentales (New York)
第三に、図表27によれば、家計の予想インフレ率が0％になってきていること。企業の予想インフレ率は0％に近づいているが、まだ0％以下。しかし、企業物価指数はプラスにでてきている。これはサプライズであると考えられる。これが、ケインズがTreatiseで言うような、Income InflationからCommodity Inflationへの道筋になるのか。また、期待実質金利が低下しているのだろうか。
April 29, 2004 OP-ED COLUMNIST Jumping Out of Sick Bay By THOMAS L. FRIEDMAN TOKYO
So I come to Tokyo to get away from it all, and what do I discover but more bad news for the John Kerry campaign. Not only does the U.S. economy appear to be headed for at least a burst of recovery around election time, but so does the world's second-largest economy, Japan, which should also help buoy the U.S. recovery. It's more evidence, to me, that Mr. Kerry may have to run in the most difficult of all environments, and exactly the opposite of the one Democrats had hoped for: an environment where the U.S. economy is rebounding, and Iraq is reeling.
As I lie awake in my Tokyo hotel, jet-lagged out of my mind and having my Bill Murray "Lost in Translation" moment, I am clicking back and forth between CNBC and CNN on the television. All the news on CNBC seems to be about how Asia's economies are now on fire, and all the news on CNN seems to be about how America's Humvees in Iraq are now on fire.
Maybe that will change in the months ahead, and maybe American voters will develop a different reaction to those contrasting images, should they continue. But for the moment, judging from many polls, it seems that Mr. Bush is being rewarded for the economy's tentative recovery more than he is being punished for Iraq's troubling slide. I'm sure the Kerry camp was hoping for the opposite — a stable Iraq and a slumping economy that would start to recover only after November — because it would play much more to Mr. Kerry's strength with voters. But, for a lot of reasons, that doesn't seem to be what's happening, and the Kerry folks had better start positioning their candidate for the world we're in.
I wish I had some smart advice. Alas, all I have is information. Even through my jet lag, I can see that the sick man of Asia, otherwise known as the Japanese economy, just jumped out of bed and is now running laps around the hospital. Everyone in the neighborhood is watching, wondering whether the sick man has really gotten healthy or just an injection of Chinese steroids and will soon stumble again — as happened before, in the 1990's. No one in the neighborhood is quite sure, even the sick man himself, but everyone is enjoying the show, especially the sick man.
There is evidence to suggest that, maybe, this Japanese recovery is real, is not just based on government spending and will last longer than previous wind sprints. I went to a briefing that Wal-Mart put on with its Japanese partner, Seiyu, a local store chain, about opening the first Wal-Mart-like big-box stores in Japan. No one ever believed that Japan's rigid, small-shop economy would tolerate a discount big-box approach like Wal-Mart's, where wholesalers get squeezed and everything from employees' pens to paper gets rationed.
But Japanese consumers, many so spooked by their faltering banks that they stuffed money in their mattresses, seem to be suddenly spending again — their confidence bolstered by recent bank restructurings and better leadership from the Japanese central bank. The Nikkei 225 stock average jumped 47 percent in the fiscal year that ended on March 31.
Because Japan (much more than the U.S.) has been able to hold onto a sophisticated manufacturing base — like high-end steel, machine tools, cutting-edge electronics and industrial robots — it's been exporting like crazy to China's start-up factories. This year, Japan's trade with China surpassed its trade with the U.S.
"Two-thirds of the reason for [Japan's] recovery is China," says the Japanese management consultant Kenichi Ohmae. China, and new Japanese plants in China, are sucking in so many Japanese exports there aren't enough ships to bring them over fast enough. China is literally dragging Japan out of its slump.
"There is [also] much more attention [in Japan] to restructuring than there was in the past," adds Jeffrey Young, Tokyo economist for Nikko Citigroup. "Companies are improving their efficiencies." And Japan's workers have proved more adaptable, in hard times, than commonly believed.
The big test is: Can Japan continue to grow, based on domestic consumer-led demand, if and when the overheating Chinese economy starts to cool? Domestic wages and productivity are still lagging. And how does Japan deal with its huge fiscal deficit and still-weak banks, which will probably require more taxes from an aging, shrinking work force to sort out?
Only when we see that will we know whether the sick man has it in him to do anything more than run laps around the hospital.