The $1 million Namiki borrowed to outfit his workshop with computerized lathes and drills almost bankrupted him as orders from clients Canon Inc., Panasonic Corp. and NEC Corp. evaporated. As interest rates cranked up to 6 percent, crashing stock and land prices wiped out $15 trillion in wealth and triggered an economic malaise that still drags on.
The bubble, and the five recessions since, help explain why business owners like Namiki aren’t buying into investor euphoria over new Prime Minister Shinzo Abe’s campaign to end deflation. Even after the steepest five-month slide in the yen for 18 years made global companies like Toyota Motor Corp (7203). more competitive and Japan the world’s best-performing major stock market, Namiki said he’s still not ready to invest.
“If we had the orders I’d think about adding equipment, but right now the work’s just not there,” the 72-year-old said at his small factory in Tokyo’s Ota district, where he and a handful of employees have made thousands of steel molds for phones, stereos, and keyboards. “The manufacturers are still in wait-and-see mode.”
The reluctance to borrow and spend of companies like Namiki’s that don’t operate abroad and make up the bulk of Japan’s economy is the biggest threat to Abe’s plans, said Nomura Research Institute Chief Economist Richard Koo.
‘Bottleneck’“The greatest bottleneck in the private-sector economy today is the lack of private-sector borrowers,” said Koo. “That comes from the fact that they went through this balance- sheet correction for the last 20 years. Americans went through the same thing in the 1930s, and many who lived through the Great Depression never borrowed again.”
Japan’s trauma was greater still, Koo said. The wealth lost was three times gross domestic product. The U.S. crash cost a year of 1929 GDP. And just when Japan was showing signs of recovery, the 2009 global financial crisis hit. Then came the 2011 tsunami. After all that, the Nikkei 225 Stock Average is two-thirds off its 1989 peak. Land is cheaper than in 1981.
To jump start investment, Abe and his handpicked Bank of Japan governor, Haruhiko Kuroda, said they will double the money circulating in the economy to drive inflation to 2 percent within two years, remove structural barriers to growth and add fiscal stimulus with tax cuts and other incentives.