Third Covid-era PM to face tough test in Japan

Bloomberg

For the winner of a party leadership vote this week to pick Japan’s third pandemic-era prime minister, a heavy lift awaits on economy.
Getting the country past the virus will be job No. 1, requiring a road map for reopening after the latest virus emergency ends, reportedly this week, and more stimulus to woo voters before national elections this fall.
Then comes the harder part: boosting innovation and tackling other long-simmering problems that have eroded Japan’s prosperity and made it the slowest growing nation in the Group of Seven.
Although it’s true that Japanese businesses didn’t make massive staff reductions during the pandemic, as happened elsewhere, decades of corporate cost cutting have created a ballooning underclass of temporary employees.
Some 40% of Japan’s workforce now has part-time or contract jobs that pay on average a third less than what full-timers make.

There was a time when most Japanese people could reasonably feel they belonged to “a middle class 100 million strong,” as a popular saying went. Those days are long gone.
Although it’s true that Japanese businesses didn’t make massive staff reductions during the pandemic, as happened elsewhere, decades of corporate cost cutting have created a ballooning underclass of temporary employees. Some 40% of Japan’s workforce now has part-time or contract jobs that pay on average a third less than what full-timers make.
The government needs to find ways to get companies to save less and pay people more.
Former Prime Minister Shinzo Abe, Japan’s first leader during the pandemic, spent years browbeating executives to raise wages, to little avail. Persuading businesses to stop hoarding cash will be even harder now that the pandemic has added another fear factor.
Still, without higher salaries the economy is stuck: shoppers won’t have more to spend, growth can’t accelerate and Japan’s inflation pulse probably won’t quicken, either.
Another way to boost growth is to innovate, but Japan has lost competitiveness in key areas. It still has more semiconductor factories than any other nation, for example, but few remain on the cutting edge. Meanwhile, Japan is making fewer significant scientific discoveries and, although it’s the third-biggest economy, it’s produced fewer major start-ups than Hong Kong.
To try to fuel productivity, outgoing premier Yoshihide Suga this month opened a new digital agency to revamp the government’s creaky computer systems and wean the country from the paper documents and personal seals still used for most official business. He also launched a $90 billion endowment to fund advanced research and set an ambitious climate goal of making Japan carbon-neutral by mid-century.
Those are good starts, but to raise Japan’s flagging growth potential, Suga’s successor will need to keep the investments coming.