Bernardo M. Villegas
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Land of the Rising Sun

          Japan's rite of spring--the "sakura" or cherry blossom--came relatively early this year in mid-March.   This arboreal harbinger of spring could be interpreted by some as a sign that, as a special report in the Financial Times (FT) put it, the nation could be "teetering on the edge of recovery."  After almost two "lost decades" that started in the early 1990s when a deep recession began as a result of a real estate bubble, there is hope that Shinzo Abe, Japan's new prime minister, may succeed in restoring confidence to both consumers and investors.  In fact, in early April the stock market bounced back, with the benchmark Nikkei average rising 44 percent since November 2012.  According to the FT report (March 28, 2013), exporters are enjoying higher profits as a result of a weaker yen.  Companies from Toyota to Seven-Eleven are remunerating their workers with bigger bonuses than they have in years.  In 2012, Japan had net Foreign Direct Investments (FDI) of $2.1 billion with investments from other Asian countries growing strongly.  After the natural disasters and the nuclear energy accidents of the last two years, thanks to the resilience of the Japanese people and renewed leadership symbolized by "Abenomics", it may not be an exaggeration to state that "Japan is back."

          A former resident of Manila, Haruhiko Kuroda (who was President of the Asian Development Bank), has been appointed as head of the Bank of Japan.  As the person in charge of monetary policy, Mr Kuroda is committed to increasing the rate of inflation to 2 percent, to enable companies to increase their prices and make profits.  This reflation, which will be accompanied by a weakening of the yen (some are speculating to over 100 yens to a U.S. dollar), is part of Abenomics.  As Martin Wolf of FT explained in a column (February 6, 2013), Abenomics has three elements:  renewed fiscal stimulus; pressure on the Bank of Japan to agree to a higher target for inflation; and still unspecified structural reforms.  A weaker yen can stimulate exports, especially to the emerging markets of Asia.  Possible higher wages and bonuses to workers can stimulate consumption, even in an aging society like Japan.

          Japan will increasingly turn to its Asian (especially ASEAN) neighbors to reenergize its economy. It is a pleasant surprise for leaders in the Asia Pacific region to learn that Japan is seriously considering joining the Trans Pacific Partnership (TPP) being fostered by the U.S.  This could lead to greater deregulation of its industries.  As soon as he took office, Mr. Abe reinstated the regulatory reform council, which had been disbanded by the previous government.  Targets for greater deregulation are the areas of employment (which can benefit Filipino professionals such as care givers, nurses, IT specialists, etc.), energy, environment, health and medicine sectors (which can help promote more medical tourism among Japanese coming to the Philippines).  To attract more foreign investments, the government has accelerated visa-issuing procedures and has set up special regional zones, which offer tax breaks.  It is also offering subsidies to global companies to cover some costs of establishing operations in the country.

          To address the serious labor shortages arising from its rapidly aging population, manufacturing operations requiring lower levels of skills are being transferred more and more to the labor-surplus countries in Southeast Asia like Vietnam, Indonesia and the Philippines.  In fact, Director Lilia de Lima of the PEZA has reported that there is such a large increase of Japanese manufacturing enterprises moving from both their home base in Japan and from China to the Philippines that our industrial zones have run out of space. She is encouraging developers of PEZA zones to expand their operations to be able to accommodate these migrating Japanese companies.  The operations that will remain in Japan are those that are at the forefront of cutting edge technologies.  An example cited in the FT article by Michiyo Nakamoto (March 28, 2013) is Biogen Idec, the oldest independent biotech company in the world whose executive vice president for research and development sees bright prospects in the Japanese market.

          All these developments were already foreseen early in January 2013 by Japanese Ambassador to the Philippines, Toshinao Urabe, one of the most knowledgeable members of the foreign diplomatic corps.  Having been a frequent visitor to Manila in the early 1970s, when his father was also Ambassador to the Philippines, Ambassador Urabe is remarkably familiar with Philippine realities.  He is very optimistic about increased trade and investment relations between his country and the Philippines.  In a visit to the University of Asia and the Pacific, Ambassador Urabe expressed great satisfaction about the quick decision of the newly appointed Minister for Foreign Affairs Fumio Kishida to visit the Philippines just two weeks after he took office.  As he reflected on this prompt decision:  "The speed in which the visit was arranged reflected the importance both sides attach to our relationship.  Not only the process but the substance of the exchange of views with Secretary del Rosario and President Aquino was equally worthy of our strategic partnership.  The strategy is to secure our peace and prosperity through means based on common values, such as human rights, democracy, market economy, and the rule of law."

      Ambassador Urabe's comments already anticipated the investment grade rating the Philippines obtained last March 28, 2013:  "The top priority of the new Abe administration is to revive a strong Japanese economy.  Economic diplomacy therefore plays an important role.  The sterling performance and rich potential of the Philippine economy were certainly factors in Minister Kishida's choice.  During the meetings in the Philippines, the contribution of JPEPA was recognized and to the point, constructive and friendly discussions took place on underlying issues."   With friends like Ambassador Urabe, we can expect Japan-Philippine relations to be one of the pillars for our sustaining the high growth rate of Philippine GDP at 7 to 9 percent annually over the next decade or so.  In fact, the unexpected decision of Japanese leaders to join the Trans Pacific Partnership may put pressure on our own leadership to consider membership in this free trade association.  I have no doubt that greater openness to foreign direct investments can only redound to higher sustainable and inclusive growth for the Philippines. Let us take full advantage of the economic spring that is finally coming to the Land of the Rising Sun.    For comments, my email address is bernardo.villegas@uap.asia.