Japan's economic woes set stage for global slump

Japanese have become almost wearily accustomed to bad economic news over the past 10 years, but even by Tokyo standards Tuesday's announcement was a painful blow. After a week of grim tidings, in which one famous corporate name after another has announced sackings and redundancies, Japan's official unemployment rate has reached 5 per cent, its highest figure in half a century.

The number of unemployed in Japan rose by 230,000 in a year to reach 3.3 million in July, the biggest total since official records began in 1953. The news came the day after the announcement of 19,000 lay-offs by Toshiba, and within days of reports of similar cuts by fellow electronic companies Fujitsu and Hitachi.

With economic stagnation in Europe and the United States, and outright recession in developing economies from Argentina to Singapore, economists fear that Japan's continued decline sets the stage for a global slump.

The Japanese economy is expected officially to go into recession next month for the fourth time in a decade, and the country's soaring unemployment represents the biggest challenge to Junichiro Koizumi, the country's popular Prime Minister.

Mr Koizumi was elected to the leadership of the ruling Liberal Democratic Party in April with promises of short-term pain in return for long-term recovery. But many Japanese politicians believe that his bold plans to purge Japan's banking and corporate sectors by eliminating bad loans and inefficiency will be too costly in terms of jobs and political support.

According to the government's own estimates, his plan finally to withdraw loans from insolvent companies incapable of paying them back will lead to bankruptcies and the loss of as many as 600,000 jobs. Mr Koizumi has promised a social safety net for workers forced into unemployment. But like most of the radical promises he has made since coming to power, he has furnished few concrete details.

Yesterday Takeo Hiranuma, the Trade Minister, openly criticised the Prime Minister's policy of reducing government spending, and called for a programme of spending to stimulate the economy.

Mr Koizumi insisted that he would not exceed his self-imposed limit of new government debt, even if there was to be an emergency spending budget. "It's too early to talk of an extra budget," he said. "But if times come when economic conditions warrant an extra budget, we will have to compile one within the 30 trillion yen (£175bn) limit."

Ever since the collapse of the famous "bubble economy" in the early 1990s, a series of governments and prime ministers have failed to arrest Japan's economic decline. In some Tokyo parks, thousands of unemployed and elderly men live in cardboard shelters, and the country's job centres are filled with salarymen desperately looking for new careers in middle age.

But for a long time Japanese companies, accustomed to offering their employees a job for life, shrunk from wide-spread redundancies.

Tokyo's air of bustling prosperity has been little affected by the economic troubles and many Japanese, and their leaders, have lived in the hope that the recession could be wished away. This year those hopes have finally been dashed.

Japan's new 5 per cent unemployment rate is about the same as that of Britain, but its impact is far worse. For a start, Japanese have no experience of high, or even fluctuating, unemployment rates. For almost 50 years from the war's end, the country's phenomenal growth provided a solid job for everyone who wanted one.

And quirks in the way Japan counts its jobless suggest that the true unemployment figure could be twice as big as the one announced yesterday. Even those who work as little as an hour a week are counted as employed and the social stigma of joblessness means that many people, especially women, do not bother to register.

The small print of yesterday's report on unemployment, by Japan's Labour Ministry, is uniformly depressing. Almost a million people were laid off in July and 180,000 university graduates were unable to find jobs, 60,000 more than a year ago. Among those aged 15 to 24, the unemployment rate is nearly 10 per cent and there are only 60 vacancies for every 100 job seekers.

The new figures show that Japanese companies are overcoming their reluctance to sack and that corporate restructuring is gathering momentum.

Many of the casualties appear to be suppliers of small industrial parts who are losing contracts to cheaper manufacturers in China and south-east Asia.

The most alarming thing about the slump is its global nature; even if Mr Koizumi can rally his nation to grit its teeth through the inevitable pain, he is inescapably vulnerable to the fluctuations of the global economy. Much of Japan's economic weakness is due to falling exports, particularly to the United States.