Japan received a sobering warning about its economy from the Organization for Economic Cooperation and Development on Thursday. The OECD, in its annual survey of Japan, says that the country has finally emerged from a long period of economic stagnation. But sustainable growth is endangered by increasing poverty, income inequality and by the effects of an aging population.
The world's second largest economy is not usually associated with poverty. But growing numbers of poor in Japan are worrying the Organization for Economic Cooperation and Development.
The policy coordination group for advanced economies announced that Japan ranks second worst in relative poverty - only behind the United States - among the 30 OECD nations.
The organization's senior economist Randall Jones says that traditional prescriptions to combat poverty do not seem to apply to Japan.
"In Japan the poverty rate is higher for single-parent families that work than for those that do not work," he said. "In Germany the solution is, get those single families to work and then they escape poverty. In Japan they're already working. The problem is the income is too low. So there's not the easy solution to say 'let's just find them jobs.'"
The OECD report cautions that rising poverty and income inequality could weaken the public will for further economic reforms. Pressures on economic growth will also come from Japan's aging population, the Japanese aversion to foreign workers and the country's poor climate for foreign investment.
Jones says Japan should look at alternatives to its traditional lifetime employment system.
"One is the U.S. approach where it's very relaxed. It's ironic, but if it's easy to lose your job it's easy to get another one," noted Jones. "The other is the Nordic model. And, in Denmark, for example it's very easy to lose your job as well, but then they have a social safety net that takes care of you after you lose your job."
The OECD says another troubling statistic is Japan's public debt - expected to equal about 150 percent of gross domestic product by next March. That is the highest percentage among the major industrialized nations.
The Paris-based policy group, however, had some good news for Japan, predicting that the economy will grow between two to three percent over the next two years. But, it says, Japan's central bank should move cautiously on interest rate rises so as not to endanger that growth.
The Bank of Japan signaled an end to the country's "easy money" era last Friday by modestly raising interest rates from virtually zero.