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No.39
No.39 ,Economy  Apr 17, 2017

Trade: New Partners

Prime Minister Abe continues to stress his commitment to a range of key Free Trade Agreements despite the recent setback of US withdrawal from the Trans-Pacific Partnership.   As globalization has accelerated, the importance of the liberalization of trade, not only in goods but also services, has become widely recognized in international society. Discussions about the benefits and risks of globalization are held around the world. Everyone understands that trade negotiations may be difficult, but the expectation in international society is that free trade will inevitably spread as the various difficulties are overcome to form a better trade scheme for the coming era. Nevertheless, on January 23, the United States decided to withdraw from the Trans-Pacific Partnership (TPP) negotiations and agreement. The decision startled not only the countries party to the TPP but also promoters of free trade around the world. Soon after the ... ... [Read more]

No.39
No.39 ,Economy  Apr 16, 2017

A New Perspective on Measures for the Declining Birthrate:
Provide Better Benefits in Kind Instead of Benefits in Cash ― The imminent challenge of expanding child care services

< Key Points > Create positive effects of female employment on fertility rates Rapid increase in benefits in cash does not directly lead to the reverse trend of fertility rates Other countries that show higher fertility rates shifted to benefits in kind after the 1990s Japan’s total fertility rate (average births per woman during her lifetime) was 1.45 in 2015, which seems to show a tendency toward recovery. Some advanced countries, including the United States, the United Kingdom and France, show fertility rates greater than 1.8. The pressure of the declining birthrate and aging population that currently faces the Japanese economy and society is not seen in other advanced countries as a common phenomenon. Child-rearing support as a measure for the declining birthrate consists of benefits in cash, such as child allowance, and benefits in kind, such as child care services. The scale of ... ... [Read more]

No.39
No.39 ,Economy  Apr 14, 2017

Bringing The Truth Behind Inflation to the World
― Reading the State of the Global Economy from the Demographics of Japan, China and Singapore

Six years have passed since Defure no shotai (The Truth Behind Deflation) was published. Here, I expand upon the answers offered by the book — which highlighted the importance of population in predicting the future economic outlook — and apply them in analyzing the global economy.   In my book Defure no shotai (The Truth Behind Deflation), which was published in 2010, I pointed out that the root cause of the long-term stagnation in the Japanese economy was the decrease in the population size of the active working generation. The productive working-age population of Japan (those aged between 15 and 64, including foreign residents) peaked in 1995 at around 87 million, and by 2012 had already declined by over 10 million; a decrease of more than 12%. This decrease was accompanied by a decline in the volume of demand for housing, cars, home appliances, ... ... [Read more]

No.38
No.38 ,Economy  Apr 12, 2017

Is U.S.-Japan Trade Friction Avoidable?
Blaming Trade Partners for Deficits Is Pointless

The new U.S. administration inaugurated in January 2017 is moving to restrict international trade by pursuing protectionist trade policy. Upon taking office, President Donald Trump declared his intention for the United States to withdraw from the Trans-Pacific Partnership (TPP) agreement and renegotiate the North American Free Trade Agreement (NAFTA). Furthermore, media reports show that the administration is moving to raise tariffs to correct bilateral trade deficits with certain trade partners, as the new administration considers the phenomenon to be quite problematic. The intent behind the sequence of moves is to protect U.S. producers from their foreign competitors. Many warn that such protectionist tilt could plunge the world economy into chaos. In the first place, why does a country’s attempt to protect domestic producers from foreign competitors pose the risk of chaos? In this article, I would like to explain how protectionist trade policies could ... ... [Read more]

No.38
No.38 ,Economy  Apr 12, 2017

Excessive Pessimism about the Shrinking Society

Since the collapse of the bubble economy in 1991, the Japanese economy has remained stagnant for an unprecedented length of time. Initially, economists from various countries regarded this long-term stagnation as economic deceleration that was happening only in Japan due in part to poor policy responses. However, the financial crisis triggered by the Lehman Brothers’ collapse in 2008 involving Europe and the United States and the slowdown in the economic growth of various countries have led to the rise of the so-called secular stagnation theory, which argues that long-term stagnation is not exclusively a problem of Japan, but a structural slowdown in growth of the overall advanced economies. Factors such as the falling birthrate and the aging population demographic change and dwindling investment opportunities are regarded as common factors. However, discussions in Japan are excessively pessimistic. This has created a vicious circle, in which ... ... [Read more]

No.38
No.38 ,Economy  Apr 11, 2017

Evaluating the “Comprehensive Assessment of Monetary Policy”
Continued Easing To Overshoot 2% Inflation ― Introducing Short-Term and Long-Term Interest Rate Control

< Key Points > Deflation has been eliminated through large-scale monetary easing There is increased confidence in the ability to hit 2% inflation with an extraordinary commitment The formation of optimum interest rates is being encouraged in light of financial circumstances At its Monetary Policy Meeting held last week, the Bank of Japan undertook a comprehensive assessment of the monetary easing policies it has pursued to date and in light of the results, introduced a new framework of “Quantitative and Qualitative Monetary Easing with Yield Curve Control.” Money Supply in Japan, United States and Europe Source: Cabinet Office, Bank of Japan, FRB, BEA, ECB, Eurostat Three years ago, the Bank of Japan set the “price stability target” at 2% in terms of the year-on-year rate of change in the consumer price index, and to achieve this, introduced a policy of “quantitative and qualitative monetary ... ... [Read more]

No.38
No.38 ,Economy  Apr 11, 2017

Do expectations raise prices?
Expectations Have Hardly Had Any Impact on Wages, The Key Factor 
― Deflation is not a monetary phenomenon

< Key Points > The postponement of the timing of achieving the price target indicates the failure of the “different dimension” of easing. Expectations are not taken into consideration when prices and wages are determined. It is not the quantity of money but oil prices that cause prices to change. The “different dimension” of monetary easing that started in April 2013 has failed to achieve its target: a core CPI (all items less fresh food) inflation rate of 2% in two years. The latest core CPI inflation rate was negative 0.4%. This rate is lower than the level towards the end of the term of office of the former BOJ Governor Shirakawa Masaaki. Finally, at the Monetary Policy Meeting held on 1 November 2016, the Bank of Japan postponed the timing for achieving the 2% price target from “during FY2017” to “around FY2018.” The ... ... [Read more]

No.38
No.38 ,Economy  Apr 09, 2017

Evaluating the “Comprehensive Assessment of Monetary Policy”
The Preoccupation with Rationalization of the New Framework ― Messaging Lacks Introspection

< Key Points > There is a limit to demand brought-forward through monetary easing Fixing long-term interest rates is indivisible from Japanese government bond (JGB) management policy Improve messaging when trying to manage market expectations Quantitative and qualitative monetary easing (“QQE”) was a “decisive battle of brief duration” designed to achieve the two-percent inflation target within two years. But now three-and-a-half years after its introduction, since we still have a negative inflation rate and there is no reliable outlook for when that target will be achieved, the question of how to reorganize into a protracted battle has attracted considerable interest. *** *** In the “comprehensive assessment” it announced on September 21, the Bank of Japan asserted that with the natural rate of interest following a downward trend, it would need toraise inflation expectations, and in doing so further lower real interest rates. In light of ... ... [Read more]

No.37
No.37 ,Economy  Apr 06, 2017

A Big Problem After All: President Trump’s Trade Policies

US President Donald Trump’s comments regarding trade are drawing anxious concern from all directions. Certainly, upon checking President Trump’s various comments from an economics-based standpoint there are many mistakes to be found; and the possibility of those mistakes having a real and significant negative impact on global trade is now increasing. The Two Types of Mistakes in Trump’s Views on Trade As far as I can see, we can divide the mistakes in the newly inaugurated President Trump’s views on trade into two main types. The first type of mistake is the clear and obvious type, which everyone can point out. A textbook example would be his assertions about protective trade. Trump insists that the influx of imported goods from overseas is robbing Americans of employment opportunities domestically. This naturally leads us to a policy of restricting imports in order to protect domestic employment; ... ... [Read more]

No.37
No.37 ,Economy  Mar 26, 2017

Declining birthrate widespread across Asia
A Key Policy Is Support for Balancing Work with Childcare ― Need to increase family-related expenditure

< Key Points > There are some countries with lower birthrates than Japan, such as South Korea and Thailand. Family-related expenditure is extremely low in Japan. It is significant that the government has set a goal for the birthrate. The number of births in 2015 was estimated at 1,008,000, which was the first increase in five years. For the first time since World War II, however, the number of deaths exceeded 1,300,000, which resulted in a natural population decline for the ninth consecutive year. Although it showed an increase, the number of births is still as many as around 200,000 fewer than 20 years ago, when the current college students were born. The trend of the declining birthrate has not improved, and it is anticipated that the population decline will accelerate further in the future. An accurate figure for the total population of Japan ... ... [Read more]

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