Japan: Boosting Growth with Day Care

Tokyo - Nana Nakagawa would love to have another baby, but given the problems she has finding day care for her two-year-old daughter, she's not sure she could manage. Although her apartment complex in the port city of Yokohama has a nursery, more than 50 children applied for fewer than 10 spots. So Nakagawa's morning commute involves a train ride and a walk to a different day care center, then another hour on the train to her job at Daiwa Securities in Tokyo's Marunouchi business district. "I realize that the clock is ticking," says the 33-year-old, "but unless I get more backup from the government, it's difficult to imagine having a second child."

As Prime Minister Yukio Hatoyama sets about getting Japan's economy back on its feet, he understands he needs to help women like Nakagawa. On Dec. 8, Hatoyama's government said it would spend $225 million to expand day-care facilities. The effort is part of an $81 billion economic stimulus package, a sweeping measure that includes everything from subsidized loans for small businesses to incentives for eco-friendly cars and appliances. The government "aims to create a society in which everyone can play a role," Hatoyama said in a speech to Parliament on Oct. 26. "This will mean promoting gender equality in all aspects of life, including employment and child-rearing."

With the lowest birthrate of any industrialized country—1.34 children per woman—Japan has a dramatically shrinking population, so there are fewer workers to support growing numbers of pensioners. Providing easy access to child care would make women more willing to have babies, says Social Affairs Minister Mizuho Fukushima, who has been instrumental in the push to improve day care. "Women working for companies have long hours, and that's a struggle," Fukushima says. She knows how hard it is: When her daughter was young, she had to move to a new neighborhood to get after-school care that would allow Fukushima to continue her work as a lawyer.

Just as important, better day care could bring more women back into the workforce, boosting economic growth. Last year, just 67.5% of Japanese women worked, vs. more than 80% in Scandinavian countries and 72.3% in the U.S. Increasing that rate would give a big boost to consumer spending, according to Dai-ichi Life Research Institute, and it could send the Nikkei 225 Stock Average up by more than 3%—creating $70 billion in wealth. "Given how acute the demographic pressures are, Japan can't afford not to make better use of its women," says Kathy Matsui, the chief strategist at Goldman Sachs Japan (GS) and a mother of two.

So far, details of Tokyo's plans for improving day care are vague. Early next year the government aims to ease rules restricting the maximum number of children at Japan's nearly 23,000 day care centers, and Hatoyama plans to offer families a monthly allowance of $145 per child under 15. Some skeptics, though, say many Japanese women are far more interested in careers and travel than in having children, so the government's efforts may have little effect. "I just don't believe it's a matter of child support," says Nicholas Smith, strategist at MF Global FXA Securities. "It's a matter of changing the mindset."

Hatoyama can look to France as a model. Since expanding child support programs in 2004, Paris has provided as much as $660 a month to subsidize day care, hands out $1,300 for each newborn, and offers families some $260 monthly for each child under three. French women now give birth to an average of 1.96 children each, the most in Europe and up from 1.78 a decade ago.

The emphasis on getting women back to work represents a significant change in Japan. Under the previous Liberal Democratic Party government, which Hatoyama's Democrats unseated in August elections, the issue received little attention. Just three years ago, then-Health & Welfare Minister Hakuo Yanagisawa said Japanese women—whom he called "baby-making machines"—simply needed to get busy (though he later apologized for the remark). "Until now, efforts to improve child-care facilities were shoved aside because they didn't win votes," says Yutaka Sanada, a manager at a trade group representing after-school care centers.

Many experts believe Hatoyama must move quickly. Japan has already returned to deflation, the downward spiral of prices that plagued the country for a decade until 2006. And economic growth was an anemic 1.3% in the third quarter, while the yen's rise to a 14-year high against the dollar is threatening corporate profits.

Any change will be welcomed by Yoko Furukawa. The 28-year-old public-relations executive loves her job at shipping line Nippon Yusen, but she's worried about keeping it. When her son turns three next November, he'll no longer be eligible for the company nursery, and Furukawa fears she won't find an alternative: "It would almost be a miracle for my child to get into any of the government-run centers."

With Takashi Hirokawa, Shingo Kawamoto, Helene Fouquet, and François de Beaupuy

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