Zirp. Pardon me. That was the sound of the Bank of Japan tearing up its zero interest rate policy. At the same time the government pressed the delete key on the word deflation.
In what was partly a symbolic move, interest rates were raised to 0.25% last month, a signal that 15 years of stagnation for the world’s second biggest economy is drawing to a close.
The stain of deflation that oozed through the archipelago, bringing not just falling prices for goods and services, but wealth destruction, collapsing property prices, and eroding pay checks, has all but receded.
The early 1990s saw the bursting of the asset price bubble, which cost the country the yen equivalent of US$8 trillion. In the intervening years, all those management books on how to succeed in business the Japanese way have moved from the remainder bins to landfill.
Footloose and debt-free
Almost unnoticed, a recovery began in early 2002, less than a year after Junichiro Koizumi was elected prime minister. If the current expansion continues past November, it will have outstripped the 57-month "Izanagi boom", that followed the Tokyo Olympics back in 1964.
It appears surreal that Japan is now poised to chalk up its longest economic expansion since World War Two.
We have seen any number of false dawns from the land of the rising sun. This time it looks as if all the pachinko balls have dropped in the winning slots together.
Japanese corporations have shovelled away much of the debt mountain that was weighing them down. The top 75 companies on the Tokyo Stock Exchange boosted their earnings by an average 27% at the last reporting stage and dividends are also on the rise.
Profit margins are at their highest level for many years, thanks to rigorous cost cutting and restructuring.
A return of confidence has led management to boost capital-spending plans by almost 13%, the fastest clip since 1991. The banks are pleased to pour out the sake to customers who have repaired their balance sheets. Loans have risen for six straight months and the 2.2% increase in July was a decade high, enabling the bankers to cut the bad loans ratio and help fix their own battered system. Government sponsored bank mergers have assisted too.
Real estate prices are climbing for the first time in 14 years and construction cranes are appearing on the Tokyo skylines again. Unemployment is at an eight year low and wages are edging up.
But wait. There is more.
The fabled big spenders among the 128 million Japanese are emerging from hibernation, blinking in the sunlight. After a generation of postponing purchases while waiting for prices to fall further, consumers are stepping up to the plate again.
The service industry is booming. Customers are rushing into hair dressing salons, health spas, dry cleaners and beauty care centres. Travel agents report vacationers are signing up in record numbers for trips this summer.
Shoppers are finally coming back to the swish department stores in Ginza and Omotosando, Tokyo’s version of the Champs-Elysee. The Consumer Price Index rose 0.6% year-on-year in June, the eighth increase in a row.
That seems to be the way the Bank of Japan wants it. Central bank governor Toshihiko Fukui has said the driver of growth will gradually move from corporate investment to consumer spending.
The Bank will not want to repeat the policy mistake of six years ago when interest rates were pushed up too quickly and put business back into the casualty ward.
A resurgent Japanese economy can only be good for China and the rest of Asia. Japan depends on exports for just 12% of its GDP. That means a fairly high degree of insulation from a weakening US economy, which now appears to be a given.
One near certainty is further US acquisitions by Japanese groups flush with cash. Early this year Toshiba paid US$5.4 billion for Westinghouse, the US power plant arm of British Nuclear Fuels. The deal turned Toshiba into the world’s number one nuclear power group. Part of the rationale was the prospect of winning contracts from China, which wants to build as many as 30 power stations by 2020.
In a bold move Nippon Sheet Glass took out the much larger 180 year old Pilkington of the UK.
Detractors say Japanese buyers invariably pay over the odds for trophy foreign purchases – citing disastrous buyouts of the 1980s that saw Columbia Pictures taken over by Sony Corp and Mitsubishi add the Rockefeller Centre to its portfolio.
That was then. This is now. Japan is more likely to embark on strategic takeovers of brand names and perhaps bump up against China with a similar shopping list.
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