TOKYO » Japan has been overtaken by China as the world’s No. 2 economy. Its flagship company, Toyota, recalled more than 10 million vehicles in an embarrassing safety crisis. Its fourth prime minister resigned in three years, and the government remains unable to jolt an economy entering its third decade of stagnation.
For once-confident Japan, 2010 might well mark a symbolic milestone in its slide from economic giant to what experts see as its likely destiny: a second-tier power with some standout companies but limited global influence.
As Japanese drink up at year-end parties known as "bonen-kai," or "forget-the-year gatherings," this is one many will be happy to forget.
Problem is, there’s little to look forward to. With a rapidly aging population, bulging national debt, political gridlock and a risk-averse culture slow to embrace change, Japan’s prospects aren’t promising. And a tense, high-seas spat with China has intensified fears of its neighbor as a military as well as economic threat.
A few optimists hope Japan can harness its strength in technology and its "Cool Japan" cultural appeal—from fashion and art to anime (animation) and manga (comic books). The country needs to shed its reliance on manufacturing, they argue, and find new growth areas such as green energy, software engineering and health care for its seniors.
But talk to university students, and their outlook is bleak.
Many worry about finding steady jobs and whether they can support families—concerns that have contributed to Japan’s low fertility rate of 1.3 children per woman. Average household income has fallen 9 percent since 1993.
It’s a startling contrast with the 1980s, when Japan was flush with cash and some experts believed its economy was poised to dominate the world.
Millions have given up the goal of lifetime employment at a major corporation and become "freeters," flitting among temporary jobs with few if any benefits. As companies cut costs, temporary workers have grown to a third of the work force, up from 16 percent in the mid-1980s.
Further, the population is projected to fall from 127 million to 90 million by 2055—40 percent of them over the age of 65. That’s going to place a heavy tax burden on workers.
Economic difficulty is a chief reason more than 30,000 Japanese have committed suicide every year for the past 12 years.
Hopes for change from the Democratic Party, which toppled the long-ruling conservatives last year, have fizzled. The Democrats lost control of the upper house of parliament in July elections, setting the stage for political gridlock.
Prime Minister Naoto Kan has acknowledged Japan’s declining status.
His prescription: "Open up the country." He advocates reducing trade barriers, loosening regulations and making the country a more attractive place to invest.
His Cabinet recently approved cutting the corporate tax rate by 5 percentage points to 35 percent and is weighing whether Japan should join a U.S.-led free trade zone, the Trans-Pacific Partnership, that would slash tariffs on everything from electronics to food.
Business leaders say doing so is vital, but farmers fear a flood of cheaper imports would ruin them. Analysts say it could be a vehicle for economic revival but also lead to job losses and social dislocation, especially in rural areas.