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No.64, Economy  Jul. 2, 2021

The World Beyond Corona—The World and Japan in Shock from Corona: Accelerating Structural Change and Amplified Uncertainty

Kojima Akira, Member, Board of Trustees, and Adjunct Professor, National Graduate Institute for Policy Studies (GRIPS)   The Novel Coronavirus (COVID-19) was detected in Wuhan, Hubei Province, China at the end of December 2019. In January 2020, cases of infections were confirmed in Japan, and the pandemic intensified as the infection spread rapidly around the world. The subsequent Great Lockdown, to quote the International Monetary Fund (IMF), has plunged the global economy into the worst recession since the Great Depression in the 1930s, creating disparities between countries, types of industry, and social classes. In 2020, the growth rate for the global economy slumped to negative 3.3%. The widening disparity has also drawn attention to how economies and societies have started to develop in the shape of a K, i.e., polarizing into areas of growth and expansion, and areas of downturn and decline. The coronavirus ... ... [Read more]

No.64, Economy  Jun. 25, 2021

Super Monetary Easing and the Asset Bubble: Limited disconnect from the real economy

Ito Takatoshi, Professor at Columbia University, Adjunct Professor at the National Graduate Institute for Policy Studies (GRIPS)   Key points As the economy recovers, the United States moves toward a rise in long-term interest rates Stock price gaps between types of industry suggest market rationality Central bank to communicate carefully with stock markets   One year has passed since the start of restrictions on economic activities in Japan, the United States, and Europe to control the COVID-19 pandemic. The economy has sustained major damage as a result of the declarations of a state of emergency and lockdowns, the unemployment rates have risen and consumption in some sectors remains weak. GDP in both Japan and the United States has dropped by nearly 10% from the most recent peak in the second quarter of 2020. In the near term, the trend is toward a recovery but ... ... [Read more]

No.63, Economy  Mar. 24, 2021

Current Status and Challenges of the Japanese Economy

Yoshikawa Hiroshi, President, Rissho University The Current COVID-19 Pandemic The current state of the Japanese economy is at a postwar low point not just in Japan but across the world due to the spread of COVID-19 since early 2020, and this is our biggest problem at present. On top of the normal influenza in winter, the spread of a third wave is feared in Japan. What will happen to the Japanese economy amid that? The second quarter of April through June, 2020 showed -28.1 points (second preliminary estimate), the lowest in the postwar period. This was a dramatic drop even in comparison to the Lehman Shock. A major factor here is the drop in consumption. About 60% of Japan’s GDP of some 500 trillion yen is consumption. At the very heart of the economy lies household and personal consumption. Consumption is stable compared to ... ... [Read more]

No.63, Economy  Mar. 24, 2021

The Whereabouts of Household Financial Assets: The COVID-19 Pandemic Transforms Retirement Plans

Iwaisako Tokuo, Professor, Hitotsubashi University   Key points Both household savings and current account balances are gradually moving into the red The rates of return on assets are not expected to rise after the COVID-19 pandemic Economic policy focuses on measures to improve the productivity of workers   From a macroeconomic perspective, there has been surprisingly little change in the circumstances surrounding Japanese household financial assets in the past quarter-century. To start with, household savings rates dropped sharply at the beginning of twenty-first century. This prompted an outcry among economists about the arrival of the “zero-saving society”, backed by the simulation studies predicting negative household savings and the current account deficit (= negative national savings). But by the mid-2000s, saving rates had stabilized at a low level and the situation has remained nearly unchanged since then.  In economics, annual savings is a flow variable, ... ... [Read more]

No.63, Economy  Mar. 21, 2021

The Path to Overcoming Crisis: Finding Overall Optimum Solutions for a Heap of Challenges

Fujimoto Takahiro, Professor, Graduate School of Economics and Manufacturing Management Research Center, University of Tokyo   Key points Issues include sustainability, digitalization and internationalization The discourse around the decline in the Japanese manufacturing industry and the praise for EVs is superficial The challenges are intertwined in complicated ways and Japanese industry is evolving   What kind of age will the 2020s be in the evolution of industry? The decade began with the global COVID-19 pandemic, the effects of which are certain to be prolonged, but the long-term industrial phenomena include measures to counter global warming, a series of floods and earthquakes, digitalization, US-China friction, and a shrinking real economy at a time of infections. To complicate matters, these issues are interlinked in complex ways. We live in complicated times in the true sense. These issues can be summed up as S for sustainability=crisis, D ... ... [Read more]

No.63, Economy  Mar. 12, 2021

The New Phase of International Trade Policy: Expanding and Promoting the TPP after the Return of the United States

Nakagawa Junji, Professor, Chuo Gakuin University Key points Biden administration expected to return to the TPP Add labor and environment-related rules to the RCEP Lobby the United States which holds the key to improving WTO functions From the end of 2020 to the beginning of 2021, a series of developments had a major impact on Japan’s international trade policy. The Trump administration, which advocated the America First principle, came to an end and the Biden administration began. In this context, it is highly likely that the international trade policy adopted under the Trump administration will be reviewed. In November 2020, the Regional Comprehensive Economic Partnership (RCEP) was agreed without the involvement of India. Once the RCEP comes into effect, a free trade zone of fifteen countries, including the Association of South-East Asian Nations (ASEAN) and China, will be created. At the start of the ... ... [Read more]

No.63, Economy  Mar. 11, 2021

The Growing Role of Japan in Economic Integration in the Asia-Pacific Region as US Involvement Declines

Urata Shujiro, Professor Emeritus, Waseda University The RCEP Has Finally Been Signed On November 15, 2020, fifteen East Asian countries including Japan, China, South Korea, the Association of Southeast Asian Nations (ASEAN), Australia and New Zealand signed the Regional Comprehensive Economic Partnership (RCEP). The RCEP negotiations were launched in May 2013 by sixteen countries, the fifteen mentioned above and India, but the negotiations ran into problems. The deadline for signing the agreement was updated many times and India even withdrew from the negotiations, but after seven years, a signed agreement has now finally been achieved. The RCEP is a comprehensive agreement consisting of trade and investment liberalization as well as rules for intellectual property and electronic commerce. Since many countries, including the principal ones, are among the member nations, the RCEP is also referred to as a mega free trade agreement (FTA).     ... ... [Read more]

No.63, Economy  Mar. 6, 2021

New Phase of International Trade Policy I: Mega FTAs are Key Strategy

Kimura Fukunari, Professor, Keio University   Key points Pressing need to restore rules-based international trading order Mega FTAs effective strategy in reducing policy risk Important to utilize and strengthen TPP11 and RCEP   Since the mid-1980s, international production networks have developed in East Asia. This international division of labor in terms of production processes and tasks has created “Factory Asia” in the manufacturing industry, particularly machinery industries. The production blocks responsible for processes and tasks in production networks are located across national borders, necessitating economic conditions and a policy environment that allows for close coordination between production blocks. A rules-based international trading order is therefore essential. However, in the past four years the international trading order has been under assault. The international trading order has faced challenges on many fronts, including the Trump administration’s trade policy that shows a disregard for the rules, countermeasures ... ... [Read more]

No.63, Economy  Mar. 5, 2021

New Phase of International Trade Policy III: No conflict with RCEP, TPP

Oba Mie, Professor, Kanagawa University   Key points Needs to center around formulation of shared rules for investment, intellectual property Important that China accepts restrictive provisions Needs to have shared rules aimed at sustainable development   In November 2020, the Regional Comprehensive Economic Partnership (RCEP) was signed by 15 countries, comprising the members of the Association of Southeast Asian Nations (ASEAN) as well as Japan, China, South Korea, Australia and New Zealand. This created a huge economic zone that accounts for around 30% of the world’s GDP, trade and population. The start of negotiations by 16 countries, including India, was announced in November 2012. Aligning the complicated interests of each country was not easy, and the deadline for negotiations was postponed many times. After many twists and turns, a negotiated agreement was reached. India ultimately decided not to join. Through the 2010s, the future ... ... [Read more]

No.63, Economy  Feb. 19, 2021

Appropriate Use of Teleworking is the Key—The COVID-19 Crisis and Productivity

Morikawa Masayuki, President, Research Institute of Economy, Trade and Industry (RIETI)   With the steep decline of gross domestic product (GDP) under the novel coronavirus (COVID-19) crisis, how much has productivity dropped? The figure below shows month-by-month changes in the overall productivity of the Japanese economy. While production activity in May 2020 was down around 15% compared with the end of 2019, productivity declined only about 3%. Although productivity still remains below the level before the consumption tax rate hike, it recovered to almost the pre-COVID-19 level in August.     Figure. Labor Productivity Under the COVID-19 Crisis   The decline in labor productivity until now has been smaller than might have been expected because labor input, which corresponds to the denominator in the calculation, has dropped steeply in tandem with industrial activity. A breakdown shows that working time adjustments, including reduction of overtime ... ... [Read more]