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Commentary (October 20, 2005)

Japanese Require the Self-Confidence to Avoid Extremes

Masahiko ISHIZUKA  (Councilor of the Foreign Press Center/Japan)

Like a boom-and-bust economy, people swing from unfounded euphoria to deep pessimism, always seeking validation from foreigners' viewpoint

In the remarkable, almost unbroken rise of the Japanese stock market since May, the Nikkei Stock Average reached a high of 13,700 in early October, and foreign investors are reported to have played a key role. Their buying has prompted domestic investors to take a bullish stance, further fueling the rise of share prices.

When victory for the Liberal Democratic Party led by Prime Minister Junichiro Koizumi became a certainly even before the Sept.11 election, foreigners stepped up buying of Japanese stocks and accelerated their rise.

With a cover showing the sun rising over the summit of Mt. Fuji, The Economist magazine wrote in a highly encouraging tone in a recent survey on Japan's economic revival. The editor, Bill Emmott, was interviewed in Tokyo by The Nihon Keizai Shimbun about his new found optimism about this country. The British magazine's assessment of the current state and future prospects of the Japanese economy sums up foreigner's views of the economy's prospects, which are behind their buying of Japanese stocks.

In 1989, at the height of the euphoria engulfing Japan in the bubble economy, Emmott published "The Sun Also Sets," predicting the limits to Japanese economic power. He was more than vindicated by what followed the collapse of the bubble - the seemingly endless stagnation and pessimism that gripped the nation for well over a decade. But he now believes Japan has had enough of the doldrums and is emerging with new strength and hope for the future.

During the 1970s and 1980s, before Emmott wrote about the darker side of Japan and when the Japanese economy was at its best, people were intoxicated with the Japanese translation of "Japan as Number One" by Ezra Vogel, a professor at Harvard University, which became a worldwide bestseller, flattering Japanese pride.

These were two instances of books that presumably greatly influenced the self-perception of the Japanese in two different directions, but what was common to them was that the way they were received attested to the inclination of the Japanese to be highly sensitive to, and often influenced by, outsiders' views. It is as if the Japanese need foreign views of themselves to form their self-perception. Just as Japanese are obsessed with searching for their own identity, so they are interested in foreign views of themselves. International recognition is important for the Japanese people's own evaluation of themselves. It often happens that only after winning acclaim abroad are Japanese academics or artists recognized at home for their achievements.

Insular mentality
Being an island country on the periphery of a continent may be one historical reason for this particular tendency. Another could be the mentality formed by Japan's experience as a latecomer to the industrialized world more than a century ago and the aspiration to rejoin it in the wake of defeat in World War II. It is well-known that foreigners reminded Japanese of the value of their traditional culture and arts after they abandoned them in the late 19th century, lost in obsession with achieving modernization and Westernization.

In the current recovery from the post-bubble slump, the Japanese are increasingly convinced that the rebound is driven by a stronger corporate sector, which struggled so hard to overcome the legacies of the bubble economy - excesses in work force, production capacity and debt.

Businesses look all the stronger because the hardships they underwent were so dire. The recovery is seen as being driven primarily by domestic corporate resources.

But Japanese investors were slow to recognize the progress in the economy's structural reform, even though it is their prime minister's obsession. They still are only half convinced that changes are really being made. It was foreigners who told them that their country had finally put itself on course for the kind of reform that will make the economy more efficient and market-oriented, less heavily regulated and state dependent.

High Fliers
The Japanese may lack sufficient confidence in themselves. They may look extremely self-deprecating and humble, but that is not the whole picture. When they were flying high during the 1980s, seemingly at the top of the world economy, the Japanese tended to be arrogant, to the extent that some prominent businessmen asserted that they had little to learn from the U.S.

What the Japanese need is the self-confidence that keeps them cool enough not to be swayed to either extreme. They need the capacity to look at themselves from a reasonable distance. One reason for their lack of self-confidence is that whatever changes they make are too slow and too small, without a clear-cut design, and are made without articulate discussion or public debate.

Only after changes take place do the Japanese realize what they have done, and have no sense of accomplishment. Doubt always remains, as The Economist repeatedly described Japanese changes to be so incremental that they not only fail to impress outside observers but even leave the Japanese themselves uncertain.

The Japanese are still bound by an inclination to swing between unfounded euphoria and deep pessimism about themselves. One lesson they should have learned from the cycle of the bubble economy and long recession is to break with this mind-set.

(Originally appeared in the October 20, 2005 issue of The Nikkei Weekly, reproduced here with permission.)

Copyright © Japanese Institute of Global Communications