Key Points The Government and the BOJ must prevent national finances from spiraling toward collapse The BOJ cannot reduce JGB purchases to zero through the manipulation of interest rates The BOJ should spell out that it will maintain easing whilst withdrawing from large-scale asset purchases At its Monetary Policy Meeting at the end of July, the Bank of Japan (BOJ) adopted the policy of “strengthening the framework for continuous powerful monetary easing.” While pledging to keep short- and long-term rates low, the central bank said that it would allow long-term yields to move up more than before. Is the BOJ’s true intention to strengthen easing or to move a step closer to an “exit”? Since the 2008 global financial crisis, the central banks of the world’s leading economies have deployed all manner of unconventional monetary policies including large-scale asset purchases, forward guidance and negative ... ... [Read more]

Key Points Concerns over side effects of interest rate manipulation and ETF purchases The new version of Forward guidance is extremely weak The longer price stagnation persists, the stronger the side effects of the measures The BOJ’s monetary policy has entered a difficult phase. Despite the current buoyancy in the economy and the job market in particular, inflation remains low, and there is no prospect of achieving the inflation target. An exit is still a long way off. At the same time, the BOJ is now finally running out of options for additional easing, having already adopted a panoply of easing tools over the past two decades. Thus, BOJ policymakers are absolutely stuck, failing to move in either direction. Worse still, there has been no progress among academics in economic theories on the central bank’s response in the event that achievement of the monetary ... ... [Read more]

The United States is accelerating its restrictions on imports. On March 23, 2018, the Donald Trump administration imposed a 25% tariff on steel imports and a 10% tariff on aluminum imports. On the same day, it announced its policy to slap a 25% tariff on the more than 1,300 imports from China in response to China’s alleged violation of intellectual property rights and mandatory technology transfer. The restrictions on steel and aluminum imports are based on Section 232 of the Trade Expansion Act, which claims that the decline in the steel and aluminum industries as a result of increased imports could threaten national security, and thus such imports should be restricted. Initially, it was announced that the restriction would apply to imports from all countries but eventually Canada, Mexico, South Korea, the European Union (EU), Brazil, Australia, and Argentina were temporarily exempted. Steel imports ... ... [Read more]

Key Points Steel protection a burden on user industries that will end in job losses Excess production capacity of Chinese state-owned enterprises (SOEs) a cause of friction Non-market measures under multilateral rules should be removed Arguing that steel and aluminum imports were harming the national security of the United States by weakening domestic industries, the Trump Administration has raised import tariffs under Section 232 of the Trade Expansion Act of 1962. These unilateral import restrictions outside the framework of World Trade Organization (WTO) rules threaten to spark a potential trade war, while protection of steel and aluminum industries from the pressures of international competition risks adversely affecting the economy and jobs. In this article I would like to consider the present status of trade policy and the problems associated with import restrictions in light of the unique nature of the steel and aluminum industries. ... ... [Read more]

< Key Points > Fifty years from now, no operational nuclear power reactors in Japan Postponements by politicians and bureaucrats have resulted in an absence of nuclear strategy and playmakers Deferred development of less toxic reactors to replace Monju The Basic Energy Plan is revised every four years with the fifth plan about to be approved by Cabinet decision. Based on the Basic Act on Energy Policy enacted in 2002, the Basic Energy Plan indicates the guiding principles for Japan’s medium and long-term energy policy. The first plan was formulated in 2003. Since then, the plan has been revised at intervals of three to four years. The fourth plan was formulated in 2014 as a result of the first reforms in the wake of the accident at the TEPCO Fukushima Daiichi Nuclear Power Plant in 2011.     As a result, the Long-Term Energy Demand and ... ... [Read more]

When similar events occur In his book Manias, Panics, and Crashes: A History of Financial Crisis, C. P. Kindleberger, the economic historian who analyzed the history of financial crises, adopts quite a gloomy historical perspective on the interactions between economic systems and people. Bubbles occur when mania (hyper-optimism) becomes prevalent in society. However, bubbles will burst at some point, causing panic and, in the end, plunging economic systems into collapse and panic. Have we not been through these processes any number of times in the modern era? Such hyper-optimism suggests a social climate where the prevalent economic behavior is excitable, yet relaxed about reckless borrowing and lending, believing all will be well. The pattern of manias, panics, and crashes applies unchanged to the collapse of the bubble economy in Japan in the late 1980s, the United States at the time of the Lehman Brothers ... ... [Read more]

Key Points: Diverse frameworks are competing to lead the regional order RCEP increasingly important due to US withdrawal from the TPP Concerns that Belt and Road Initiative (BRI) is inconsistent with the liberal order The Regional Comprehensive Economic Partnership (RCEP) is an initiative targeting aspects of regional economic integration between the Association of South-East Asian Nations (ASEAN) and the six countries that already have free trade agreements (FTA) with the ASEAN (Japan, China, Korea, India, Australia and New Zealand). Formally declared open in 2012, the ongoing negotiations aim to establish the rules for eighteen areas including goods, services, investment, rules of origin, intellectual property, competition, and dispute settlement. One of the points in favor of the RCEP is that the members include China and India as well as all ten ASEAN countries. Only four of the ASEAN countries participate in the Trans-Pacific Partnership (TPP) ... ... [Read more]

  Key Points: Implementing the RCEP would greatly benefit the global economy. Deter protectionism together with the TPP and the Japan-EU EPA Transitional measures and capacity-building support the negotiation conclusion   On July 1, Tokyo hosted a ministerial meeting of the Regional Comprehensive Economic Partnership (RCEP). This was the first ministerial meeting to be held outside the Association of Southeast Asian Nations (ASEAN). RCEP is a supra-regional economic area (a mega free trade agreement) in East Asia, the center of global economic growth. The sixteen nations participating in the negotiations account for about half of the world’s population (3.4 billion) while the GDP (about USD 20 trillion) and total trade (about USD 10 trillion) account for one third globally. If the agreement is implemented, it will have a substantial and positive impact on both the East Asian and the global economy. Regional cooperation in ... ... [Read more]

Professor Doi Takero of Keio University speaks with Ito Takatoshi, former Vice Minister of Finance for International Affairs and Private Sector Member of the Council on Economic and Fiscal Policy. View of Current Situation Doi Takero: Five years have passed since the second Abe Cabinet initiated “Abenomics.” A diversity of views have been offered about whether any benefits have resulted from this policy package, but I wonder if you could tell us succinctly how this set of fiscal and monetary policies that go under the general name of Abenomics came into being in the first place, including what they imply for today? Ito Takatoshi: I see. I’ll try to be concise. Doi: No need to say that [laughs]. So, the key posts at the Bank of Japan have been determined, and the decision has been made for Governor Kuroda Haruhiko to continue serving. So ... ... [Read more]

East Asia has achieved sustainable economic growth by forming Factory Asia, linked through supply chains across nations. The growth of East Asia also brought significant benefits to Japan by generating demand. Over the past quarter-century, real income per capita increased 3.2-fold in East Asia, and exports from Japan to East Asia expanded 3.7 times. In recent years, nearly 10% of Japan’s income has been attributable to exports to East Asia. However, the Asian growth has slowed down lately. China’s real economic growth declined from around 10% in the 2000s to below 8% in the 2010s. Emerging economies in East Asia—such as Malaysia, Thailand, and Indonesia—have been growing at an annual rate of 3% to 5% in recent years, stopping short of serving as a robust growth engine for the region. With rapid population aging expected to occur in many countries in the region, it ... ... [Read more]