Q: How poor will Japan become? A: It’s already sufficiently wealthy; it won’t become poor even at zero growth.Japan faces a declining population and a rapidly aging society. A look at the future of Japan that Abenomics cannot forecast. The reason why the Japanese public is worried that the nation could start to decline without growth is because past administrations have historically indicated that a recovery in the growth rate would reverse Japan’s economic depression and solve the problem of its aging society. But as the Japanese people already earn an average per capita gross domestic product (GDP) of close to 40,000 U.S. dollars despite still being worried about further growth to avoid becoming poor, from a historical and global perspective they are really quite unusual. To avoid any misunderstanding, I must add that I am by no means saying that in the long ... ... [Read more]

Q: Will Japan end up a loser if the trade gap widens? A: There are no winners or losers in trade, but attention is needed on an increase in the current account deficit.Japan’s widening trade deficit: the presence of Japan, an exporting country, continues to fade, but the current account balance, rather than the trade balance, is what requires attention. The problem surrounding the country’s imbalance, such as the trade balance or the current account balance, is old and yet a new theme. After a period of rapid economic growth, the ensuing era for Japan that persisted for a long time was one in which its massive trade surplus was deemed problematic in the course of international negotiations, resulting in numerous types of trade friction with the United States, be it in textiles, automobiles or semiconductors. At the Plaza Accord of 1985, major countries ... ... [Read more]

< Key Points > – Despite the correction of the strong yen, export volumes have not increased. – With monetary easing, long-term interest rates have declined, facilitating smooth sales of government bonds. – The profitability of bank lending has deteriorated due to falling long-term interest rates. It’s been a year since the inauguration of the administration of Prime Minister Abe Shinzo. During this period, the economy has been staging a very steady recovery. However, this latest economic recovery is believed to be slightly different due to the fact that it has mainly been led by domestic demand, whereas most of the previous economic recoveries in recent years were driven by external demand. That is to say, despite the approximate 20% correction in the strong yen since the start of the Abe administration, there have been almost no increases in export volumes. The instruments that ... ... [Read more]

< Key Points > – Abenomics has clearly achieved significant results in terms of an economic recovery. – A noticeable slowdown in the growth rate will definitely be seen in fiscal 2014. – The growth strategy features state control measures. A year has passed since the administration of Prime Minister Abe Shinzo advocated its economic policies called Abenomics. With the improvement in the economy, the business community is also enjoying a more encouraging business environment. However, many difficult challenges lie ahead. Abenomics is generally considered to consist of three arrows: aggressive monetary easing, timely fiscal stimulation, and growth strategies (the narrow view of Abenomics). However, there seem to be certain characteristic developments in the management of the economic policy besides these three arrows. In that regard, this report will call the overall economic policies that the Abe administration has been carrying out the “broad view ... ... [Read more]

< Key Points > – The adoption of bold financial policies has resulted in a steady rise in the inflation rate. – The short-term fiscal stimulus and the medium-term fiscal reconstruction have been progressing. – The implementation of growth strategies clearly appears to be slow. Abenomics, the economic policies advocated by the administration of Prime Minister Abe Shinzo, began on November 14, 2012, when then Prime Minster Noda Yoshihiko stated that the House of Representatives would soon be dissolved. During the campaign for the election of new members of the House of Representatives, Mr. Abe positioned ending the deflationary economy as the key to the reconstruction of the Japanese economy, and strongly requested that the Bank of Japan change its policies by setting an inflation target and launching unprecedented aggressive monetary easing (the “first arrow”). The introduction of monetary easing and a rise in ... ... [Read more]

The pace of government efforts to reform the medical and LTC insurance systems appears to be slow when compared with that of the nation’s pension program. The government should scale back benefit expenditure while ensuring a further stable revenue source for social security at the same time. In response to prevailing demands, which call for sustainability in medical and LTC services, the social security system must be constantly reviewed and adjusted in a flexible manner in order to control benefit expenditure by limiting the scope of the social benefits provided while imposing stringent eligibility requirements. It is quite difficult to forecast gross benefit expenditure over the long term because the nation’s medical and LTC insurance systems are generally run on a single annual budget principle, and they are easily influenced depending on the degree of epidemic disease and progress in medical technologies, unlike the ... ... [Read more]

Now that it has been determined that the consumption tax rate will be raised from April 2014, discussions on the reform of the social security system have been underway. This report will reexamine whether pension, medical care and nursing care insurance systems can be sustained. A consumption tax rate hike to 10% would still be a drop in the oceanBenefit restraints and higher contributions from the elderly are necessary  Prime Minister Abe Shinzo decided on October 1, 2013 to raise the consumption tax rate to 8% in April 2014. The discussion about this hike in the consumption tax rate initially started from consideration of the Comprehensive Reform of Social Security and Tax initiated by the government of the Democratic Party of Japan, and the objective of the tax hike is believed to be to achieve sound and stable social security and stable financial resources, ... ... [Read more]

The consumption tax rate hike has set a course for securing of steady financial resources for the basic pension, but it is also necessary to take measures to cut benefits for achieving a sustainable pension system. An increase in the consumption tax rate to 8% from April 2014 is expected to generate additional annual tax revenues of approximately 8 trillion yen. However, the increase of tax revenues for FY2014 is likely to be limited to 5.1 trillion yen, given a gap in tax payment periods and a slump in consumption. Of additional tax revenues of 5.1 trillion yen, 2.95 trillion yen will be used to finance the national treasury that contributes half of the basic pension (Figure). Responding to the major issue of the pension system, the question of its sustainability due to the declining birthrate and aging population, the four acts related to ... ... [Read more]

The Japanese economy has begun to show signs of breaking away from the sustained deflation that has lasted more than fifteen years, unprecedented in modern world history. Japanese stock prices are maintaining their inherent upward momentum, and in its revised January 2014 World Economic Outlook, the International Monetary Fund (IMF) revised its forecast for Japan’s real GDP growth in 2014 (the real economic growth rate) up by 0.4 point from its forecast in October 2013, to 1.7%.  The Japanese government, led by Abe Shinzo, is extremely confident, as its policy for economic revitalization, commonly called Abenomics, which was launched at the beginning of the new government in December 2013, is clearly producing an effect. With the widespread public expectations of economic revitalization, the Abe administration’s approval rate has remained around 60%. On the other hand, the government is facing a fiscal problem, indicated by ... ... [Read more]

The number of foreign visitors to Japan is expected to reach 10 million this year. And this number will likely grow further with the 2020 Olympics in Tokyo. What do businesses need to do in order to succeed in this growing market? What are the issues? We undertake a multilateral analysis.   As a nation for tourists, the government needs to develop rules  The number of inbound visitors to Japan rapidly increased during the period from January to September, and is expected to reach 10 million by the end of the year. While this trend is riding the tailwind of a weaker yen and visa deregulation, could Japan continue to increase its inbound visitors to double or triple the current number? The Ginza store of Don Quijote (“Donki”), a discount store that is open twenty-four hours a day, is known to be teeming with ... ... [Read more]

Japan is now poised to increase its own efforts to enhance the credibility of U.S. extended deterrence, casting aside a long-held ambivalent stance of distancing itself from U.S. nuclear strategy, while relying on it to deter the threat of nuclear weapons. The National Security Strategyadopted on December 17 last year by the Liberal Democratic Party (LDP)-led coalition government of Prime Minister Abe Shinzo recognized that “the extended deterrence of the United States with nuclear deterrence at its core is indispensable” for Japan’s security against the threat of nuclear weapons. It also stressed the country’s preparedness to “work closely” with the United States in order to enhance the credibility of its extended deterrence, including Japan’s own efforts for ballistic missile defense (BMD)[i].  The National Security Strategy was the first policy statement of its kind for Japan, which replaced the Basic Policy for National Defense to ... ... [Read more]

On December 17, 2014, the Government of Japan (GOJ) released two key documents for its national security policy: the National Security Strategy (NSS) and the new National Defense Program Guidelines (NDPG). The NDPG proposes Japan’s defense strategy and policies to implement the strategy including the structure and posture of the Self-Defense Forces (SDF) with a time span of at least ten years. The first NDPG was issued in 1976 and the GOJ has revised it in 1995, 2004 and 2010. The new NDPG has several remarkable characteristics: it is the first NDPG developed under a new document, the “National Security Strategy”; it contains several key phrases such as “proactive contribution to peace,” “Dynamic Joint Defense Force,” and “Seamless response to various situations including so-called ‘gray-zone’ situations”; and it gives serious consideration to the two most important factors in the strategic environment in the Asia-Pacific ... ... [Read more]