Japan, Going Forward

One month has passed since the devastation that struck Japan. Although many issues still remain, Japan has regained its foothold and is now on the road to recovery. We thank the HBS community for your words of encouragement, generous donations, and sincere compassion for our nation faced with the greatest disaster since the Pacific War. In our final article, we would like to take this opportunity to offer our modest perspectives regarding this event in relation to our history and national culture.

Everybody here knows about the markers. We studied them in school. When the tsunami came, my mom got me from school and then the whole village climbed to higher ground. – Yuto Kimura (12 years old)

Stone markers called Sekihi dot the coast line of Japan. Some date as far as 600 years ago, indicating the flooding level of Tsunamis. Many have lessons inscribed in them indicating how the Tsunamis follow earthquakes, and the hopes of Japanese had for their descendants. Japan’s history is riddled with disasters, and resilience from devastation has become engrained into its culture. This Tsunami will be but another chapter of the Japanese resolve in rebuilding on the aftermath of disaster.

In self-sacrificing harmony, we behold true nobility.
– Opening article of Constitution, 604 AD

The peaceful and harmonious way they helped each other while waiting long lines at disaster camps and field hospitals received accolades throughout the world. The hardship of disaster brought many together in a sense of unity, and people expressed that bond in a self-sacrificing attitude towards each other. The recent course of events reminded Japan of this cultural attribute we hold dear, and will undoubtedly enable us to succeed in rebuilding.

We lose $350M for every one yen appreciation in the Yen/USD exchange rate.
– TMC Employee

As Japanese domestic forms hastened to rebuild their cash positions by bring back liquid assets into the country, the yen soared to ¥75/USD before central bankers corrected the fluctuation back to the ¥82-85 range. If such appreciation were to take hold, the Japanese economy could not survive. For one brief day in the market, we were at the brink of an economic disaster that would have crippled the country.
Northeastern Japan is an area historically known for its beautiful crops of rice and agrarian culture. In recent decades, it took on the role of manufacturing center for flagship firms such as Sony, Nissan, and Honda, as a hedge against the concentration of factories in central Japan. The damage from the earthquake and loss of power directly impacted this critical manufacturing capability. Operations halted throughout the country in companies like Toyota, and global firms such as Ford and General Motors had to slow down their operations as they were unable to procure parts from the devastated industrial area. Manufacturers, including Japanese firms are now looking overseas for their suppliers and Japan has lost a tremendous source of growth.
Although the acute economic effects of the disaster have now normalized, the earthquake reminded the Japanese just how fragile its economy is. As a volcanic island in the middle of the Pacific with only 25% arable and inhabitable land, Japan has a fundamental weakness in its resources for its aging population of 127M. Now into the second ‘lost decade,’ deflation is a term that Japan has become accustomed to. With its national debt over 170% of GDP and lack of consensus among law makers, it can ill afford further decline in its economy. Japan will certainly recover from the physical damages of the Tsunami, but what about the economic implications? Did the disaster cause irreparable harm to the economy, or will this become a catalyst for the government and business to unite once again to recreate the ‘miracle years’?

Despite aggressive corporate demand for ‘globally oriented’ candidates, Japanese foreign exchange students have declined 20% from its peak in 2004.
– New York Times, Feb 2011

Japan has a long standing tradition of sending scholars abroad to bring in novel ideas and technology. This dates back to 600AD when Japan sent emissaries to China, and more recently in the late 19th century with emissaries to Europe and America. Japan is the only country that practices Medicine in German from this historical tradition of aggressively sending scholars overseas. The Plaza Accord in 1985 made studying abroad even more affordable as the USD depreciated in relation to the Yen and the MBA in particular became a highly sought destination for many of Japan’s elite. Undoubtedly, the high quality education these foreign exchange scholars brought back to Japan prompted tremendous growth in the twilight years of the Japanese success story.
However, in the decades following its economic decline, Japan deviated from its tradition of seeking innovative ideas and methods from the world. Introspection took hold of the country and the ‘hungry spirit’ that drove individuals like Rocky Aoki (founder of Benihana) to succeed overseas became a rarity. Students no longer took advantage of foreign exchange opportunities and corporations took less interest in the global ideas and methodology brought back from overseas.
The economic damage brought on by the disaster may mark a turning point in this introspective trend. The ministry of education recently mandated English education in Japanese grade schools. Some major firms are beginning to hold their executive meetings in English. Japan is once again turning its eyes to the world. The global market is a challenging environment with the rising emerging markets and developed countries still recovering from the financial crisis. The disaster has reminded us of our shaky foundations in economy. Despite the few decades of ‘miracle growth’ Japan enjoyed, the limited economic foundations do not allow it to rest on its laurels and enjoy an introspective path of domestic consumption. The limited natural resources and aging population require Japan to constantly direct its eyes outward in search for further innovation and growth.
Moving forward, it is the duty of the Japanese people to learn from the disaster. With a sense of unity and a self-sacrificing harmony, surely, it will rebuild from the physical damages of the earthquake and tsunami. The disaster also brought on significant economic headwinds through the loss of a major industrial area. The loss of a major Nuclear power plant left Japan with a 10M kW gap in energy supply as it heads into the summer months, with a fearful population protesting against Nuclear power. It is our sincere hope that Japan will heed the warning signs of a frail economy exposed through the disaster, return to its tradition of aggressive learning from the world, and fight to grow despite the limited resources.

Note from the Author: On behalf of the Japanese students at HBS, we thank you for your warm words of encouragement, generous donations, and sincere compassion for our country. Thanks to your support, the HBS community was able to raise $4,360, and many survivors were able to receive significant physical aid at a time of great need.
As mentioned in the article, Foreign Exchange Scholarship has been a national imperative in Japan for centuries, and we feel our relationship with the HBS community is an integral aspect to our experience. The Japan Trek is a time-honored tradition that was handed to us by our predecessors and every class seeks to maintain the quality and reputation that has been built since the 80’s. We sincerely look forward to our opportunity to share our country and culture.