ECONOMY > Japan's economy back after 'Lost Decade'

TOKYO -- A lone scoop of ice cream for $23. A penknife for $500. A cruise for $160,000. Make no mistake: Japan is back.

After 14 gloomy years, Japan is emerging from a spiral of recessions, malaise and deflation and is on pace for the longest period of growth since World War II. As in its heyday in the 1980s, the rise of the world's second-largest economy is sending ripples through Asia, Europe and the U.S.

But behind the good news is also a sobering portrait of a country altered by what it calls the Lost Decade.

Today's Japan is increasingly divided between the flush and the frustrated, winners and losers. Homeless men, shed by layoffs, live in shanties in the parks of glittering cities. High-school graduates, without training or long-term jobs, while away days in video arcades. Families with little savings struggle to pay soaring college tuitions.

The changes, blamed for rising rates of domestic abuse, suicide and truancy, have stirred intense debate in a nation that long prided itself on equality and stability.

"The economy has been strengthened," said sociologist Masahiro Yamada of Tokyo Gakugei University, "but those who have been sacrificed have no place to go and in the future they will be a drag on the economy."

Signs of recovery are unmistakable. Exhibit A is Tokyo's Omotesando shopping district, where Ferraris and Bentleys squeeze through cramped side streets lined by hip boutiques. Browsing $500 briefcases and shoes at the Porsche Design menswear store, a Toyota assistant manager, Junichiro Hara, said he recently splurged on a $1,000 Omega watch for his wife to celebrate the birth of their second child.

"My salary hasn't gone up yet, but my life is stable, so I'm happy," Hara said.

Indeed, consumer confidence is at a 15-year high as the country enters its fourth year of strong growth. Unemployment is the lowest since 1998, and companies are reporting record profits. Most important, economists say, this recovery is unlike several false starts in the past decade because it is driven by domestic demand, not simply exports or government spending.

This is the latest turn in Japan's economic drama. At its height in 1991, the real estate value of Japan was four times that of all property in the U.S. Even then, though, Japan's egalitarian ethic meant that more than 90 percent of its citizens told pollsters they were middle class.

Then the bubble burst in 1991, and stock and real estate markets tumbled. To recover, leaders jolted Japan's entrenched corporate culture, giving companies new freedom to replace "lifetime employment" with part-time and contract laborers. Welfare and poverty rolls have soared, even as the state has sought to trigger spending by cutting taxes for the rich.

"The top tax bracket has dropped from 70 percent to 37 percent," said Professor Ryuichiro Matsubara, an economist at the University of Tokyo.

The result is that Tiffany and Ralph Lauren boutiques are flourishing—and so are thousands of new 100-yen shops, the equivalent of American dollar stores. A recent poll by the Asahi newspaper found that 74 percent of the public sees a growing gap between rich and poor. Books with such titles as "Lower Class Society" and the "The Hope Gap" are as popular as business memoirs in the 1980s.

To many here, the strains run deeper than simply between haves and have nots; they worry that the bonds of a close-knit society are fraying. Some Japanese commentators point to attacks on the homeless or schoolhouse shootings as signs of moral decay left by years of frustration; others say the success of fantasy culture in video games and anime cartoons reflects a young generation eager to find refuge outside reality.

"In the past, there was a greater spirit of mutual assistance, but it has declined," said Tokyo social worker Kizaki Kasai. "Ordinary people today are having a hard time, so they don't have as much time for helping others."

Competition in society has intensified. Though companies are on the mend, they offer far fewer good jobs. Nippon Steel, Japan's largest steelmaker, has 20,000 workers today, down from 60,000 two decades ago. It expects a record profit this year of $2.84 billion, allowing it to revive its recruitment of white-collar workers. The company expects to hire 501 this year, up from just 140 five years ago, a spokesman said.

Though that is good news to student leaders such as 20-year-old Osamu Nishikawa of Tokyo University, he cautions that the effect is limited because many students will find only part-time or contract jobs, which pay, on average, 60 percent of the salary for full-time positions.

"Students are very worried," Nishikawa said. "Often, our parents were affected by corporate restructuring and so they can't send money for their children either."

Tuition at Japan's best schools has risen 15-fold in the past three decades, and sociologist Masao Watanabe of Hitotsubashi University says the system is producing a "disguised aristocracy."

Just as the winners of the new economy are unmistakable, so are the losers. Each Sunday night, a long, quiet line forms in Tokyo's answer to Central Park. In the shadow of five-star hotels and the warm glow of an Alfa Romeo dealership, a building contractor, a former prison guard, an engineer and about 500 others accept free bowls of rice from a nonprofit before drifting back into the city.

Among them, 57-year-old electrical engineer Susumu Oe looks like any salaryman with his khaki trench coat, tidy haircut and black satchel. After two years of living in the subway, only his frayed collar and some vanished teeth betray him.

"I read in the newspapers about the Japanese recovery," he said. "They talk about a cheaper workforce, but I want to tell these companies that humans will always do a better job than machines."

He was laid off two years ago from a job repairing television sets, he says, along with everyone else his age. He looked for work, while he slid down the scale of ever cheaper hotels and, finally, bathhouses. Now he makes his money as a human placeholder, earning $36 a day for lining up to buy new video games or baseball tickets for others to enjoy.

Yet, things are improving; Tokyo's homeless population dropped 25 percent to 4,500 people from 1999 to 2004. That has left the remainder in sturdy tents and shelters, like monuments to the hard years, in parks across Japan.

In a stand of pine and cherry-blossom trees in one Tokyo park, 55-year-old Toru Takemoto lives in a two-room shack made of wood and blue nylon tarp. He is well stocked with a hot plate, bed, wall clocks, a spice rack, stainless-steel pots and other amenities recovered from Tokyo's trash.

He was a contractor before landing on the street seven years ago. Like many on the margins here, he sees little in today's fast-changing economy that gives him the confidence to give up what he has.

"If I move into an apartment," he said, "then I will have to struggle to survive."