MAKINOHARA, Japan, Oct 3 (Askume) – There’s no better place to understand the challenges facing Bank of Japan Governor Kazuo Ueda in steering the world’s fourth-largest economy away from monetary stimulus than his birthplace.
Makinohara, a windswept surf town that once thrived on a vanishing tea industry, epitomises the contrast between Japan’s struggling countryside and its bustling big cities. This year it was added to a widely published list of places at risk of extinction due to population decline.
Shortly after Ueda was promoted in April 2023, the soft-spoken 73-year-old spoke of the “very serious challenges” rural areas posed to Japan’s reform.
The Bank of Japan has begun reducing the massive stimulus measures that have supported the economy for decades. National data showed that the central bank raised interest rates for the first time in 17 years in response to rising wages and increasing consumer demand. The bank is expected to raise interest rates again before the end of the year .
Still, in Makinohara, the dilemma facing the BOJ in formulating a two-speed economic policy is clear, as Askume described in interviews with eight residents including business owners, city officials and relatives of Ueda.
Some have expressed uneasiness about the pace of the BOJ’s reforms and their potential impact on companies that have room to raise wages or absorb higher debt payments. They also criticized the local economic situation .Compared to the improving national picture painted by the central bank.
Mayor Kikuo Sugimoto said Makinohara has not kept pace with Japan’s broader reforms.
“The Bank of Japan says it’s okay to raise interest rates because inflation is happening and wages are rising, but we haven’t felt that in rural areas yet,” Sugimoto said.
Yoshimaru Suzuki, director of 200-year-old soy sauce maker Hachimaru, said rising interest rates “will eventually act as a brake.” Hachimaru began manufacturing wiring systems for automobiles and ships in the 1980s.
Suzuki, 47, said he failed to raise wages faster than the minimum wage hike. Although he has begun raising prices to offset higher costs, he worries that rising interest rates and a stronger yen will hit his export-focused customers.
“Unless domestic demand grows, there is no chance we can survive,” Suzuki said. If interest rates keep rising, he worries he won’t be able to repay his bank loans.
According to Bank of Japan June survey data, the business climate in the Tokai region (Shizuoka Prefecture and cities such as Nagoya, where Makinohara is located) lagged 5 percentage points behind the national level. It was the lowest among the nine regions surveyed.
Japan’s new Prime Minister Shigeru Ishiba, whose ruling Liberal Democratic Party faces a general election on Oct. 27, called for efforts to revive and protect rural areas in his leadership victory speech last week. On Wednesday, he said Japan was not ready to raise interest rates again.
The Bank of Japan declined to comment to Askume on the impact of its policy changes on rural economies like Makinohara’s.
Rural Roots
Both of Ueda’s parents were from Makinohara, and he was considered the town’s most famous son. When Ueda moved to Tokyo to study as a young boy, his relatives told him he would return to the town during school holidays.
Askume visited his home, an ornate tiled-roofed house right off the main road. On an August afternoon, there were few pedestrians around. A nearby clothing store was closed.
At home, his uncle Rokuro Ueda, only six years older than him, sat on the couch in the living room, reminiscing about his childhood, with a photo of him and Ueda standing hand in hand in front of the bookcase.
Rokuro said that during the summers they were together, the studious Ueda preferred listening to English lessons on the radio rather than playing outside. Ueda studied economics in the United States with monetary policy theorist Stanley Fischer and served on the Bank of Japan’s policy committee from 1998 to 2005, teaching at universities in Tokyo and Canada before being promoted last year.
In 2010, at the invitation of his distant relative, then-mayor Shigeki Nishihara, Ueda returned to Makinohara to give a speech on Japan’s economic challenges.
While the lecture’s images and concepts may confuse local audiences, Nishihara said it is important to demonstrate that people from Makinohara can have a national impact.
Saihara said: “Somewhere in Kazushige, there are roots that tie him here.”
But Ueda is one of many locals who make the three-hour trip to Tokyo and rarely look back.
In its heyday in the 1980s, Makinohara was the center of Japan’s booming tea industry, so much so that wealthy farmers could spend half the year on golf courses, Sugimoto said.
Changing consumer habits have caused the industry to decline, and the city now depends on jobs and revenue from several large companies based in Makinohara, including automaker Suzuki Motor Corp (7269.T) and auto parts maker Suzuki Motor Corp 7269.T) supplier Yazaki.
A Suzuki spokesman said the company wants to contribute to economic development in all areas where it operates, including Makinohara.
According to the local government, Makinohara’s population has declined by 20% to about 43,000 in the past two decades, with the largest population now consisting of people over the age of 70.
A study released in April by the Population Strategy Council listed Makinohara, where half the population is women aged 20 to 39, as one of the towns most likely to go extinct by 2050.
Daring
Although rural areas like Makinohara don’t contribute much to GDP, they are home to many Japanese small and medium-sized enterprises. Such companies account for 65.6% of Japanese employment and 56% of the Japanese economy, according to a government report released this year.
When the Bank of Japan (BOJ) raised wages for the second time, Ueda acknowledged that some smaller companies might not be able to sustain the wage increases.
That’s the case for Akio Yamamoto, chief executive of agribusiness Sea Bussan. The company, which is three centuries old, once ran brothels, processed tea and sold fertilizers and pesticides.
“I would like to raise workers’ wages, but small businesses don’t have the ability to do that,” said Yamamoto, 68, adding that he has reduced his headcount this year and is no longer hiring new workers to replace retirees.
This shift by the Bank of Japan coincides with a change in government strategy: Companies with low productivity are falling into bankruptcy faster, Askume reported in July.
When asked in April 2023 how he would consider rural areas in policy thinking, Ueda stressed that companies need to find innovative ways to adapt and grow internationally.
Some companies have already answered the call, including Makinohara’s agricultural startup M2 Labo.
President Yuriko Kato, 50, said she welcomed the path taken by Ueda to normalise policies. She said higher interest rates and a stronger yen would help secure foreign investment for companies in India.
“If we lose our guard, we will have no choice but to sink,” he said, adding that it is easier to work abroad than to wait for change in Japan.
That spirit is evident elsewhere in Makinohara, where there’s a craft brewery, a specialty coffee shop and a surf stadium that generates artificial waves.
The city also hosts global business competitions. One of the previous winners, S.Lab, a Ukrainian company that produces biodegradable packaging from waste and fungi, told Askume it was preparing to build a factory in Makinohara.
Yamamoto also keeps a close eye on the successful effort.
He hopes that banana farming will be the next big trend and is growing bananas on the land behind his house, which once used to be a tea plantation.
As he walks towards an almost deserted park where a statue of one of the company’s former owners stands to commemorate his contribution to the tea industry, he says, “Wouldn’t it be more fun to create a new local specialty?”
He smiled and said, “Maybe ten years from now they will call me the founder of the famous Makinohara Banana.”
