Japan today is threatened by the shadow of its inflating neighbor, China. While some people allege that its being a super economic power growing at a 7% rate or that it will pass the United States in GDP are established facts, a substantial number of commentators argue that the Chinese economy is collapsing and will soon default since it has a 200% debt ratio versus GDP and that the country’s outstanding shadow bank financing has surpassed 60% of the GDP. From an economic standpoint as a close observer of modern China, I have to say that these threat and collapse theories are all illusions, far too extreme. The reality is, China’s growth rate will drop drastically and the economy will not empower itself limitlessly, nor will its GDP surpass that of the United States. In fact, China will be forced to suffer an age ... ... [Read more]

Finally, the consumption tax rate has been raised. On the morning of April 1, I saw that the prices of newspapers had gone up. Fares for JR trains had been changed, and there were digits other than zero. The minimum fare for a taxi ride in Tokyo had also risen to ￥730. At a family restaurant the menu had changed completely. I ordered eggs benedict since it was unusual to find the dish in a Tokyo restaurant. But the next moment I said to myself, “Ah, this new item on the menu was only to camouflage the price hike.” Tsk, tsk. I had just spent ￥704 on breakfast. Increases in costs are everywhere. Typical for Japan, there was little confusion. So, what will the economy be like? I expect that the consumption tax hike will have adverse effects. Every time I have been asked ... ... [Read more]

Will Japan, which has been viewed as a country with huge surpluses, become a nation with twin deficits (budget and current account deficits)? Overseas investors have been asking this question frequently in recent years, in addition to arguments on the same point coming from Japan. Japan’s prominent external surplus received criticism and created pressure on the country to cut the surplus in the 1980s when trade and economic friction between Japan and the United States were at a peak. Measures for expanding domestic demand, which were taken to address the situation, went too far and produced a bubble economy. It is quite the problem to make a correction in the current account surplus or deficit a policy goal by attaching importance to the balance of payments only. This is undoubtedly a lesson learned from that experience. In the author’s view, it is essential for ... ... [Read more]

The future is filled with uncertainty and yet, amid this uncertainty, there is quite a high level of certainty regarding the population outlook. In this sense, the population can be said to represent a “certain future.” Any attempt to forecast the future of Japan’s society and economy through its population raises many serious issues, including “constraints on economic growth,” the “social security crisis” and “regional depopulation,” so much so that these issues can be collectively referred to as the “population crisis.” This population crisis is the “certain crisis” in the certain future. The causes of the certain crisis include the aging of the population and the decrease in the working-age population, but the real root of the problem lies in the declining birthrate. However, currently, despite government efforts to implement measure against birthrate decline, the downward trend continues unhalted. At the moment, the “persistence ... ... [Read more]

< Key Points > * Behind the abandonment of a general framework agreement were the disputes between Japan and the United States * Liberalization rate of about 97%-98% will be needed to reach an agreement * Japan-U.S. summit meeting in April 2014 will be the last remaining hope for achieving the TPP The Ministerial Meeting of the Trans-Pacific Partnership (TPP) negotiations, held on February 22-25, 2014 in Singapore, postponed a decision, having given up on reaching a general framework agreement. The failure of negotiations to come to an agreement follows a similar outcome from the Ministerial Meeting in December 2013. Negotiations are expected to continue, but the fact that no date has been set for the next round is among the reasons why the process seems to have stagnated. As it is, the negotiations quite possibly could lose momentum and begin drifting, much like ... ... [Read more]

< Key Points > *High density negotiations are making progress and moving towards a conclusion. *Defending tariffs on agricultural products at any cost does not mean successful negotiations for Japan. *A high-level abolition of tariffs will influence the political climate in the United States. Negotiating the Trans-Pacific Strategic Economic Partnership Agreement (TPP) is not an easy task. Negotiations are even more difficult as the TPP now covers countries that have an inexperienced level of freedom and a new exposure to international rulemaking. The density of negotiations is extremely high. Japan, who joined talks later on in the process, participates in a meeting practically every week. The speed of these negotiations is also remarkably faster than those of ordinary free trade agreements (FTA). At present, topics with a large gap among the participating countries are reported to be: Tariffs, the protection of intellectual property rights, competition ... ... [Read more]

< Key Points > * It is appropriate to raise the consumption tax rate in annual increments of 1% until fiscal 2025. * An increase in wages will trigger a positive economic cycle, leading to higher growth. * With the consumption tax hike, a current account deficit will be avoidable, due to low growth in imports. The economic outlook has been improving, but that does not mean that longstanding problems have been addressed. Challenges of fiscal consolidation and the ending of the deflationary economy remain incomplete. This report will examine what kind of scenarios Japan can design to achieve steady economic growth while focusing on achieving a steady fiscal situation on a priority basis, what issues need to be dealt with to achieve those scenarios, and the outlook of the Japanese economy to fiscal 2025. (Refer to the table.) *** *** *** *** *** ... ... [Read more]

Government must resolve to make the most of the Tokyo Olympics  Tokyo will host the 2020 Summer Olympics and Paralympics. Since Tokyo was selected as the host city I have been using the term “Abenolympics.” This implies that Abenomics, the economic policy advocated by the Abe administration, is now bolstered by a tailwind, the Olympics. The Tokyo Metropolitan Government (TMG) estimates that the production-inducing effects of the Olympics will be 3 trillion yen over the next seven years. However, the actual effects are expected to be much larger than that. The Olympics are expected to bring about three economic effects: (1) the effect on construction and building work and other ordinary activities, (2) attraction power, and (3) saving face. A preliminary calculation (by the Institute for Urban Strategies, the Mori Memorial Foundation) shows that as long as appropriate policies are adopted, economic effects from ... ... [Read more]

Q: Non-regular employment is rising rapidly. Is Japanese society all right? A: Hinders growth, no rise in productivity for overall economyThe rise in contract employees, casual staff and other non-regular employment not only lowers personal income; it also has a major impact on the economy as a whole. The rise in non-regular employment not only increases the number of individuals with wages fixed at a low level and widens income disparity, but it also stand in the way of economic growth. This is some empirical research that I participated in. When we compared contributions to production (degree of contribution) among regular employees and non-regular employees in the manufacturing industry, we found that productivity among non-regular employees was lower than the wage gap would suggest. In short, even though it is claimed that non-regular employees are generally hired and exploited for low wages, in fact, ... ... [Read more]

Q: What are the criteria for the government to rescue a corporation? A: When market failure is greater than failure by the governmentThere are pros and cons to the government rescue of TEPCO and JAL. It is time to explain the economics behind the permissible scope for public rescue of private corporations. There is mounting concern in Japan and abroad about the rights and wrongs of governments contributing to corporate turnarounds. Overseas, the turnaround of General Motors (GM), the U.S. corporation that was temporarily nationalized in the wake of the collapse of Lehman Brothers, has attracted attention. Recently, we have also seen rising concern about state-owned corporations in China and other emerging countries buying and selling Western corporations, or dumping exports. In Japan, opinion is divided about the measures taken to support the process of turning around JAL, which relisted on the stock market ... ... [Read more]