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No.19
Economy, No.19  Mar. 24, 2014

The First Year of Abenomics – Part 2 An Overreliance on Short-Term Economic Stimulus Packages — Public contributions have been put off to the future. — Its real value will be tested after fiscal 2014.

KOMINE Takao, professor at the Graduate School of Regional Policy Design at Hosei University; Project Leader at the 21st Century Public Policy Institute

< Key Points > – Abenomics has clearly achieved significant results in terms of an economic recovery. – A noticeable slowdown in the growth rate will definitely be seen in fiscal 2014. – The growth strategy features state control measures. A year has passed since the administration of Prime Minister Abe Shinzo advocated its economic policies called Abenomics. With the improvement in the economy, the business community is also enjoying a more encouraging business environment. However, many difficult challenges lie ahead. Abenomics is generally considered to consist of three arrows: aggressive monetary easing, timely fiscal stimulation, and growth strategies (the narrow view of Abenomics). However, there seem to be certain characteristic developments in the management of the economic policy besides these three arrows. In that regard, this report will call the overall economic policies that the Abe administration has been carrying out the “broad view ... ... [Read more]

No.19
Economy, No.19  Mar. 24, 2014

Financial and Fiscal Policies Successfully Adopted— The government needs to continue to strive to achieve inflation through growth strategies without fearing the costs.

TO Takatoshi, Professor, University of Tokyo

< Key Points > – The adoption of bold financial policies has resulted in a steady rise in the inflation rate. – The short-term fiscal stimulus and the medium-term fiscal reconstruction have been progressing. – The implementation of growth strategies clearly appears to be slow. Abenomics, the economic policies advocated by the administration of Prime Minister Abe Shinzo, began on November 14, 2012, when then Prime Minster Noda Yoshihiko stated that the House of Representatives would soon be dissolved. During the campaign for the election of new members of the House of Representatives, Mr. Abe positioned ending the deflationary economy as the key to the reconstruction of the Japanese economy, and strongly requested that the Bank of Japan change its policies by setting an inflation target and launching unprecedented aggressive monetary easing (the “first arrow”). The introduction of monetary easing and a rise in ... ... [Read more]

No.19
Economy, No.19  Mar. 14, 2014

Japan’s Medical and Long-Term Care (LTC) Insurance System One percentage point of the sales tax should be used directly to help sustain elderly medical and LTC service systems

The pace of government efforts to reform the medical and LTC insurance systems appears to be slow when compared with that of the nation’s pension program. The government should scale back benefit expenditure while ensuring a further stable revenue source for social security at the same time. In response to prevailing demands, which call for sustainability in medical and LTC services, the social security system must be constantly reviewed and adjusted in a flexible manner in order to control benefit expenditure by limiting the scope of the social benefits provided while imposing stringent eligibility requirements. It is quite difficult to forecast gross benefit expenditure over the long term because the nation’s medical and LTC insurance systems are generally run on a single annual budget principle, and they are easily influenced depending on the degree of epidemic disease and progress in medical technologies, unlike the ... ... [Read more]

No.19
Economy, No.19  Mar. 13, 2014

Consumption Tax Rate Hike and Social SecurityCan Pension, Medical Care and Nursing Care Insurance Be Sustained?

Suzuki Wataru, Professor, GakushuinUniversity

Now that it has been determined that the consumption tax rate will be raised from April 2014, discussions on the reform of the social security system have been underway. This report will reexamine whether pension, medical care and nursing care insurance systems can be sustained. A consumption tax rate hike to 10% would still be a drop in the oceanBenefit restraints and higher contributions from the elderly are necessary  Prime Minister Abe Shinzo decided on October 1, 2013 to raise the consumption tax rate to 8% in April 2014. The discussion about this hike in the consumption tax rate initially started from consideration of the Comprehensive Reform of Social Security and Tax initiated by the government of the Democratic Party of Japan, and the objective of the tax hike is believed to be to achieve sound and stable social security and stable financial resources, ... ... [Read more]

No.19
Economy, No.19  Mar. 13, 2014

Consumption Tax Rate Hike and Social SecurityPension: Reform has slightly progressed, but cutting of benefits is unavoidable in the future

The consumption tax rate hike has been determined, but…

The consumption tax rate hike has set a course for securing of steady financial resources for the basic pension, but it is also necessary to take measures to cut benefits for achieving a sustainable pension system. An increase in the consumption tax rate to 8% from April 2014 is expected to generate additional annual tax revenues of approximately 8 trillion yen. However, the increase of tax revenues for FY2014 is likely to be limited to 5.1 trillion yen, given a gap in tax payment periods and a slump in consumption. Of additional tax revenues of 5.1 trillion yen, 2.95 trillion yen will be used to finance the national treasury that contributes half of the basic pension (Figure). Responding to the major issue of the pension system, the question of its sustainability due to the declining birthrate and aging population, the four acts related to ... ... [Read more]

No.19
Economy, No.19  Mar. 10, 2014

A Year after the Launch of Abenomics: High Expectations for Sustainable Growth from Structural Reforms

KOJIMA Akira, Chairman of World Trade Center Tokyo, Inc., Member, Board of Trustees of the National Graduate Institute for Policy Studies

The Japanese economy has begun to show signs of breaking away from the sustained deflation that has lasted more than fifteen years, unprecedented in modern world history. Japanese stock prices are maintaining their inherent upward momentum, and in its revised January 2014 World Economic Outlook, the International Monetary Fund (IMF) revised its forecast for Japan’s real GDP growth in 2014 (the real economic growth rate) up by 0.4 point from its forecast in October 2013, to 1.7%.  The Japanese government, led by Abe Shinzo, is extremely confident, as its policy for economic revitalization, commonly called Abenomics, which was launched at the beginning of the new government in December 2013, is clearly producing an effect. With the widespread public expectations of economic revitalization, the Abe administration’s approval rate has remained around 60%. On the other hand, the government is facing a fiscal problem, indicated by ... ... [Read more]

No.18
Economy, No.18  Feb. 4, 2014

New Developments in the Agricultural BusinessAbolishing the policy to reduce rice production is the first step toward a national economy based on agriculture: Toward agricultural innovation and business creation

YAMASHITA Kazuhito, Research Director, Canon Institute for Global Studies

Inaccurate perceptions about agriculture  With respect to agriculture, there is the common perception that large-scale farmers run their modern agricultural operations by using a lot of fertilizer and chemicals, while poor small farmers engage in environmentally friendly agriculture, and that Japan can’t compete with agriculture in the United States and Australia due to its small land area and the scale of its agricultural operations.   The agricultural industry and certain experts claim that this is why Japan’s agriculture, especially its small farmers, must be protected, and that expanding the scale of farming operations to improve efficiency or for Japan to join the Trans-Pacific Partnership (TPP) is out of the question.  However, there are no poor small farmers in Japan today. Small farmers are employed at other jobs and do their farming on the side, thus earning more than working-class households. Since they don’t depend ... ... [Read more]

No.18
Economy, No.18  Jan. 22, 2014

Conditions for Wage Increases:Conditions for Wage Increases: Productivity improvement alone is not enoughNeed to keep the country’s manufacturing business cluster inside the country and to restrain trading losses

FUKAO Kyoji, Director General, Institute of Economic Research, Hitotsubashi University

< Key Points > * Real wage rate after 2000 has been stagnant * Biggest factor is declining terms of trade * No room to boost labor share to any significant degree Prime Minister Abe Shinzo and his administration are actively encouraging businesses to raise wages. But are wage increases really possible, judging from the productivity trends? And, if so, then what are the necessary conditions? A nation’s labor productivity is measured by the real gross domestic product (GDP) generated per hour of labor. Of the real GDP per hour of labor (e.g. 5,000 yen per hour), the real labor cost per hour (e.g. 3,000 yen per hour) is distributed to labor. Therefore, in simplified terms, if the rate of increase in real wages exceeds that in labor productivity, labor share (60% in this example) should increase. If labor share continues to grow, return on ... ... [Read more]

No.18
Economy, No.18  Jan. 21, 2014

Conditions for Wage Increases: Close consultation between labor and management For important economic strategy Need to maintain close watch over impact on employment

< Key Points > * Reconcile labor and management thinking on the consumption tax * How corporate revenue is allocated influences the revenue * Necessary to monitor excessive labor intensification Since the beginning of this year, Prime Minister Abe Shinzo has actively sought wage increases for employees in the industrial sector. Wage levels in Japan are continuing to stagnate, resulting in weaker buying power for households (see the graph). The logic behind the demand for a wage increase is that a rise in wage levels would revitalize consumption, which accounts for about sixty percent of GDP, and facilitate a break with deflation.  As a result, some corporations raised wages at the negotiations between labor and management in the spring of this year, but there was hardly any reaction in the wage levels of the economy as a whole. According to the Monthly Labour Survey ... ... [Read more]

No.18
Economy, No.18  Jan. 21, 2014

Hope for a Wage Increase

Yoshikawa Hiroshi, Professor, Graduate School, University of Tokyo

At the Government-Labor-Management Meeting held in the Prime Minister’s office on October 17, representatives from two leading Japanese companies—namely, President Toyoda Akio of Toyota Motor Corporation and Chairman Kawamura Takashi of Hitachi, Ltd.—expressed their positive views toward a wage increase. Prime Minister Abe Shinzo responded to this by saying, “We have heard very encouraging news.” Several years ago, or even just a year ago, there weren’t many people who thought that a wage increase would be a real possibility. I’m probably not the only one who feels that this trend has changed. Nominal wages began to decline in Japan between 1997 and 1998, just as a financial crisis was taking place. Many economists believe that, just like inflation, deflation is a “monetary phenomenon”—that is, deflation happens when the amount of money in the market is insufficient compared to the amount of goods. However, I ... ... [Read more]