Unlike the American decoupling approach, de-risking is attracting more attention as an approach to China spearheaded by Europe. This is characterised by tightening regulations in specific fields for economic security. This article explains what measures the EU is taking and what are Brussels’ aims.   Hayashi Daisuke, Associate Professor, Musashino Gakuin University   At the G7 Hiroshima Summit in May 2023, the G7 announced its commitment to a de-risking approach towards China. The concept of de-risking was originally proposed by the President of the European Commission Ursula von der Leyen, and was later incorporated into the G7 Hiroshima Leaders’ Communiqué with other member states, such as the United States and Japan. However, what is the concept of de-risking, and how does it differ from decoupling? I provide an overview of the origins of the concept of de-risking, specific policy developments, and cooperation with ... ... [Read more]

  Key points Mild deflation process keeps down household consumption When people’s long-term expectations are overturned, there is a risk of rapid inflation The Bank of Japan recognizes the risk that a policy shift may cause disorder   Saito Makoto, Professor, Nagoya University   Japan’s fiscal and monetary policies are facing drastic changes in a global economic environment marked by advancing inflation and rising long- and short-term interest rates. There is also the firmly rooted view in the financial community and elsewhere that the long-term interest rate should be raised to reduce the gap between domestic and foreign interest rates as well as counter the yen’s depreciation. There is also a lot of talk about removing the upper limit on long-term interest rates. Moreover, there have been prominent proposals for the restoration of fiscal discipline in anticipation of a rise in long-term interest rates. ... ... [Read more]

  This paper examines energy security from an economics perspective, using the gasoline subsidy issue and the delay in introducing carbon pricing as examples.   Fujii Hideaki, Professor, Faculty of Economics, Kyoto Sangyo University What is energy security? Japan’s high economic growth, which began in the late 1950s, came to an end with the first oil crisis in 1973, and 2023 marks 50 years since then. Subsequently, as the external environment of the energy market changed, the Japanese economy succeeded in reducing energy consumption intensity (energy consumption required to produce a unit of gross domestic product) over the long term. This has been because of the rapid yen appreciation due to the Plaza Accord (1985), deregulation and market opening, Japan-US trade friction, the bubble economy and its collapse, the end of the Cold War structure, the deflationary economy, globalization, crude oil price volatility, the ... ... [Read more]

  The unipolar era in which Japan unilaterally “chose” its Asian partners is over, and we are entering a multipolar era in Asia. How should Japan deal with this evolving dynamism in order to be “chosen” as a trusted partner? This paper will discuss viable strategies in the “age of values,” with a focus on “business and human rights (BHR).”   Goto Kenta, Professor, Faculty of Economics, Kansai University The era of connectivity The 21st century is the era of connectivity. Increased mobility of goods, people, capital, and information has deepened connections across borders. Most goods and services are now produced in global value chains (GVCs), connecting various types of companies in countries at different income levels. GVCs have developed most extensively in Asia, where these complex intra and inter-firm organizational forms have elevated it to the “factory of the world.” In recent years, ... ... [Read more]

  Key points Not only low-income earners, but also the middle class has serious worries about the future Mechanisms for “not creating vulnerable people” anywhere in the whole population It is necessary to balance benefits and burdens, e.g., by raising the consumption tax rate   Ide Eisaku, professor, Keio University   Times of crisis destabilize the lives of not just the majority but also the few. Also the COVID-19 crisis brought to the fore how low-income earners were suffering from “anxiety about tomorrow” while the middle class were suffering from “anxiety about the future.” Post-COVID safety nets need to rationally resolve these two anxieties both economically and politically. The term “safety net” generally conjures up an image of relief for people struggling to make ends meet. Yet the number of people struggling with this is growing, with the middle class now starting to feel ... ... [Read more]

  Kimura Fukunari, Consulting Fellow, Research Institute of Economy, Trade and Industry (RIETI), Professor, Keio University   While efforts to pursue free trade have stalled amid the growing geopolitical tensions, the time has come to restart the free trade agreement (FTA) strategy. The entry into force of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in all of the 11 original signatory countries and the United Kingdom’s signing of a protocol to accede to the CPTPP in July 2023 may become triggers for doing so. The U.S.-China confrontation has shifted from a tariff war to a struggle for high-technology supremacy and appears to be intensifying further. As seen in a speech given by U.S. National Security Adviser Jake Sullivan in April, meanwhile, the principle of protecting foundational technologies “with a small yard and a high fence” to strike a balance between advanced technology ... ... [Read more]

  Okazaki Tetsuji, Faculty Fellow, Research Institute of Economy, Trade and Industry (RIETI), Professor, University of Tokyo   Just before noon on September 1, 1923, a massive, 7.9-magnitude earthquake struck the southern Kanto region, which includes Tokyo. According to a survey by the city of Tokyo in 1925, the total number of dead and missing people from the disaster in Tokyo Prefecture and six nearby prefectures stood at about 105,000, including 70,000 in Tokyo Prefecture and 32,000 in Kanagawa Prefecture. There was also massive property damage, amounting to 5.5 billion yen (about 7 trillion yen in 2010 prices). Using the same 2010 prices for comparison, damage totaled about 8 trillion yen for the Great Hanshin-Awaji Earthquake in 1995 and about 17 trillion yen for the Great East Japan Earthquake in 2011. The Great Kanto Earthquake resulted in less damage than the other two. Compared ... ... [Read more]

  Key points High risk of legal instability and unpredictability Economic coercion negating the advantages of free trade Making rules to correct adverse effects of system differences   WATANABE Mariko, Professor, Gakushuin University   At the G7 Hiroshima Summit in May, there was a directional shift from “decoupling” to “de-risking” in relations with China. The term “de-risking” was proposed by Ursula von der Leyen, President of the EU, but similar views were expressed in statements by National Security Advisor Jake Sullivan and Secretary of the Treasury Janet L. Yellen. In a speech in April, Yellen presented three principles of economic China policy: (1) first of all, securing the national security interests of the United States, allies, and partners as well as protecting human rights, (2) otherwise, fair and healthy economic competition with China, and (3) cooperation on global challenges. Sullivan said that “Export controls ... ... [Read more]

  The Global Financial Crisis (GFC) of 2008 triggered calls for reforms that would strengthen financial regulations globally. But amid the stresses of financial disruptions in Europe and the United States, caused by the spread of COVID-19 in the spring of 2020 and the instability of banking systems in early 2023, regulatory reforms did not perform as initially intended; instead they have exposed flaws and even contributed to market fragility. This paper summarizes the malfunctioning of new regulations seen in the context of the pandemic and bank failures, and explores the root causes of the failures and a direction for improvement. Also, it provides an overview of the implications for Japan and how overseas authorities are rethinking their approaches.   Miyauchi Atsushi, Professor, SBI Graduate School of Business Macroprudential Regulations Introduced in the Wake of the Global Financial Crisis Various challenges for post-GFC regulatory ... ... [Read more]

  Nishimura Gota, Columnist, Toyo Keizai Inc.   Foreign observers have begun to point out similarities between the Japanese and Chinese economies. How should we understand the current state of the Chinese economy? What is the issue of “Japanification” that is ongoing in China? China in a state of intoxication There was a time when it was said that selling the land on the inside of the Yamanote Line that circles central Tokyo would earn you enough to buy the whole of the United States. This tends to come up as an illustration of what the bubble economy was like in the late 1980s. In retrospect, it makes little sense, and even at the time, there were many who felt it strange. Even so, it is hard to resist when there is some kind of inertia at work in society as a whole. Nearly ... ... [Read more]