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Economy, No.50  Nov. 27, 2018

Points of Discussion Concerning the Strategic Energy Plan: Toward policy measures to take advantage of the market mechanism

The Strategic Energy Plan is based on two major principles. The first principle is that the government sets numerical targets regarding the future energy mix. Under the fifth draft plan, the government would maintain the policy of aiming for a share of around 60% for thermal power and around 20% each for both nuclear power and renewable energy. The second principle is that the government determines policy measures to achieve various policy goals. For example, means of reducing CO2 emissions include the use of renewable energy and nuclear power and the promotion of energy conservation. The new Strategic Energy Plan is expected to indicate numerical targets for emission reduction with respect to each means of reduction. In economics, this policy design approach is known as “optimization by social planners.” Under this approach, the government gathers as much information as possible as a social planner ... ... [Read more]

Economy, No.50  Nov. 16, 2018

What Do Growth Strategies Need?: Sweeping Away Citizens’ Anxiety Regarding the Future

Prof. Murata Keiko

Key Points Growth strategies do not raise corporate and household expectations Younger households suppress their consumption to a greater extent in anticipation of lower lifetime income Working style reforms are essential for increasing expected lifetime income The Abe cabinet has approved the Japanese government’s growth strategies (Future Investment Strategies 2018) and Basic Policies for Economic and Fiscal Management and Reform (big-boned policies). Growth strategies for this year prioritize driverless automatic driving, next-generation healthcare systems and an e-government, among other projects, for realizing Society 5.0. They seek to raise the potential growth rate through technological innovations. The strategies also incorporate various other measures for growth, such as human resources development, working style reforms, regulatory reforms and economic partnerships, as stated in big-boned policies that are growth strategies in a broad sense. This is the sixth year under the growth strategies adopted by the Abe cabinet. ... ... [Read more]

Economy, No.50  Nov. 16, 2018

The BOJ’s Difficult Path Towards an Exit from Current Easing: Impact of ETF holdings on corporate management

Prof. Gunji Hiroshi

Key Points Stock buying by central banks is highly unusual No need to worry that unrealized losses will push BOJ into negative equity One option is for BOJ to simultaneously sell ETFs and buy an equivalent amount of stocks There is much debate surrounding the BOJ’s exit from monetary easing. In particular, market watchers and players alike are keeping an eye on developments in the BOJ’s Exchange Traded Fund (ETF) Purchase Policy. In this article, I would like to examine the impact of the BOJ’s ETF purchases and its exit strategy. The BOJ started buying ETFs as part of the monetary easing policy introduced in December 2010 under Governor Shirakawa Masaaki. ETF purchases were initially intended to reduce Japan’s high market risk premia (additional returns) in the aftermath of the global financial crisis. However, the BOJ made it a rule that the amount of ... ... [Read more]

Economy, No.50  Nov. 15, 2018

The BOJ’s Difficult Path Towards an Exit from Current Easing: The BOJ should win the market over and prevent a sharp increase in interest rates

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]

Economy, No.50  Nov. 14, 2018

The BOJ’s Difficult Path Towards an Exit from Current Easing: A difficult balancing act between the merits and demerits of easing

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]

Economy, No.50  Nov. 14, 2018

The Harmful Effects of U.S. Trade Restrictions (II): A chain of retaliation and global chaos

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]

Economy, No.50  Oct. 25, 2018

Harmful impact of US import restrictions (I) : Contagion to other trade items, retaliation by trade partners, hindering revitalization of domestic industries

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]

Economy, No.50  Oct. 16, 2018

Points of Discussion Concerning the Strategic Energy Plan I: The nuclear power replacement strategy

< 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]

Economy, No.49  Sept. 2, 2018

Can we learn from history, or do we simply repeat history?—Trump’s trade policy from an economics perspective

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]

Economy, No.48  Aug. 16, 2018

Prospects for the RCEP Negotiations: Protecting the Liberal Economic Order

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]