Economic revival failing to save vanishing towns (2024)

TOKYO: After three decades of stagnation in Japan, one of the most visible signs of renewal can be found in a stretch of old cabbage fields on its southernmost main island.

Apartment blocks, hotels and auto dealerships are springing up near a new semiconductor plant set amid farmland in the prefecture of Kumamoto, which has easy access across the seas to China, Taiwan and South Korea.

The plant operated by global chip giant Taiwan Semiconductor Manufacturing Co (TSMC) launched this year and one more is planned nearby.

Wages and land prices in the area are up sharply as demand feeds into a burgeoning ecosystem of suppliers and related businesses.

With jobs opening up, the population is mushrooming.

Within an hour’s drive of the plant, however, the town of Misato shows more familiar scenes of economic distress.

Once busy shopping streets are now lined with shuttered shopfronts.

The population is roughly one-third of its 24,300 peak in 1947.

Instead, the number of roaming deer and wild boar is growing, prompting locals to protect their crops with netting.

Campaign posters for the long-ruling Liberal Democratic Party line the main road as it threads its way through rice paddies.

One of them declares: “Bringing you the feeling of economic revitalisation.”

“I don’t feel it because we farmers are barely making ends meet,” said Kazuya Takenaga, 67, as he tended his fields of asparagus and rice.

The rising costs of fertilisers, energy and utilities have eaten into Takenaga’s earnings.

His two sons have left the town in search of work elsewhere.

The two conflicting images lay bare the biggest challenge for whomever the LDP chooses to become Japan’s next prime minister in a vote on Friday.

Ensuring that a broad and lasting recovery takes hold across the entire nation – not just in certain areas.

The struggle to do that is one of the main reasons Prime Minister Fumio Kishida is stepping down, despite Japan’s economic gains.

Nine candidates are vying to replace him as head of the LDP, which has led Japan for all but a few years since the 1950s and is almost certain to win a general election that must be held within the next year, not least because the nation’s opposition parties are weak and scattered.

During the campaign, the LDP leadership candidates have wrestled with the problem of rural decline and the unceasing flow of people from the countryside into cities like Tokyo.

Some said the TSMC example provides a model that should be replicated around the country.

Others emphasised tourism or incentives for businesses and academic institutions to shift into rural areas.

All agree more needs to be done to boost birth rates, but few have new or radical ideas.

Failure to broaden out the recovery risks leaving Japan firmly entrenched as a two-track economy, where the concentration of money and people is among the most extreme in the developed world.

Businesses will increasingly struggle to find sufficient manpower and services, a phenomenon that is already evident even in Tokyo and other major cities.

To global investors, Japan is firmly back on the map.

The stock market is close to record highs. Deflation appears to be vanquished.

Money is pouring in for deals and investment, and the central bank is no longer experimenting with extreme stimulus.

The Bank of Japan (BoJ) expects the economy to continue expanding more than its potential growth rate of as much as 1% a year.

Japan’s leaders are also becoming more confident on the world stage.

While the US ally has long shied away from displays of hard power, it’s now rapidly beefing up military spending in response to concerns about China and North Korea, and becoming an influential voice on issues like support for Ukraine.

Since Japan’s defeat in World War II, a growth spurt through the late 1980s propelled it from occupied ruin to the world’s second-largest economy after the United States.

In 1992, when Japan’s consumer electronics were still the envy of the world, the country’s gross domestic product (GDP) per capita topped the United States at US$32,000. Yet some three decades later, it’s only ticked up to US$33,000.

Over the same period, International Monetary Fund figures show per capita GDP in the United States has more than tripled to US$85,000.

Japan’s population started shrinking more than a decade ago and continues to decline by roughly 600,000 every year.

Along with a lack of investment, that rapid depopulation has decimated towns and villages across the country. The door has opened slightly to foreigners of late, but permanent immigration largely remains a political taboo.

Demographics are just part of the challenge. Japan’s productivity ranks 30th among the 38 members of the Organisation for Economic Cooperation and Development, a club of developed countries.

Outside the auto industry, the stagnation has sliced through Japan’s manufacturing sector. As overseas rivals expanded their global share of chip production, Japan failed to keep pace.

Through it all, entrenched deflation prompted authorities to make stable 2% price growth a key goal for re-energising the nation.

That long economic stasis explains why there’s so much excitement now.

Inflation is back as companies award the biggest wage hikes in decades, prompting the BoJ this year to raise interest rates for the first time since 2007.

The government has also set aside about four trillion yen to revive its chip industry, a strategy aimed at pushing TSMC and other companies such as Samsung Electronics Co and Micron Technology Inc to beef up operations.

“This is such a good place to be in right now,” said Chizuru Watanabe, who relocated from another part of the prefecture to take up an administrative role for Japan Material.

“You can see great things are going to happen in the future.”

Moreover, the city is also strategically important. The TSMC plant in Kumamoto has deepened Japan’s ties to Taiwan, a potential regional flashpoint if China ever moves to seize the democratically governed island.

Those concerns have played a large role in Japan’s moves to boost defence spending to 2% of its GDP from 1% by 2028, and for the outgoing Kishida to repeatedly warn that Russia’s war in Ukraine might be a forerunner of a similar conflict in Asia.

Some of that cash is being spent on anti-ship missiles deployed at a base in Kumamoto that serves as the western regional headquarters for Japan’s army, known as the Ground Self Defence Force.

Sitting roughly halfway between Tokyo and Taiwan’s capital, the base would likely play a major role if Japan is drawn into a regional war.

A recent exhibition basketball game held in Kumamoto with a Taiwanese professional team shows how ties are deepening with an influx of technicians and plant managers from overseas, too. — Bloomberg

Economic revival failing to save vanishing towns (2024)
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