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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]

No.63, Economy  Feb. 4, 2021

Asia’s Growth and the Rise of China

Nakao Takehiko, Former President of the Asian Development Bank and Chairman of the Institute at Mizuho Research Institute Ltd.   Nakao Takehiko, whose approximately seven-year tenure as the President of the Asian Development Bank (ADB) ended in January 2020, described his days at the bank in his recently published book, Ajia keizai wa do kawattaka (How has the Asian economy changed?). Chuokoron’s editorial department asked him about the future of the Asian economy and a rising China. The interview was held in July 2020. What will a post-COVID-19 Asia be like? — The COVID-19 pandemic continues. What impact will it have on the Asian economy? With the severity of the pandemic remaining low in Asia, people say that, from a global perspective, its economic recovery will be quick. Nakao Takehiko: I’m not a medical expert, so I do not know how the COVID-19 pandemic ... ... [Read more]

No.62, Economy  Jan. 31, 2021

Importance of allocation mechanisms that don’t rely on price adjustment: Rebuilding the concept of markets

Kojima Fuhito, Professor and Director at the University of Tokyo Market Design Center (UTMD) Key points Focusing on the visible hand that replaces traditional price mechanisms Expanding the use of market design for kidney transplants Improving institutional design to eliminate the childcare waiting lists issue   One of the most prominent ideas in economics is Adam Smith’s concept of the “invisible hand.” The invisible hand is the magical mechanism for price adjustment that is capable of maximizing the wealth of society if self-interested consumers and companies respond to the prices of goods and services. With advances of research in economics,  this idea has been elaborated upon. However, neoliberals have also used this phrase to promote deregulation. And yet, no one has ever actually seen the invisible hand. In fact, examples of the price mechanism not working can be found everywhere in society. Although it ... ... [Read more]

No.62, Economy  Jan. 24, 2021

Maintaining Capital in Tourism Sector Urgently Needed

Yoshida Yushi, Professor of Economics, Shiga University   In the 21st century, Japan’s current account (CA) has undergone a sea change. This is partly due to external shocks, namely the Global Financial Crisis of 2008, which depressed global demand, and the Great East Japan Earthquake of 2011, which caused substantial damage to the domestic production base. The COVID-19 Shock of 2020, however, has had a completely different impact. Broadly speaking, CA can be divided into the balance of trade, services, and income. The balance of trade is the difference between the value of exports and the value of imports; the balance on services is the difference between country’s inbound travel and transportation and country’s outbound travel and transportation; and the balance on income is the difference between income (compensation of employees and investment income) earned from overseas and income paid overseas. For many years, ... ... [Read more]

No.62, Economy  Jan. 17, 2021

Corona Crisis and Fiscal Expansion: Continued Debt Refinancing Entails High Risk

Ueda Kazuo, Professor, Kyoritsu Women’s University   Key points A shift to a total rejection of fiscal deficit and government debt Large government debts negatively impact potential growth rate Continuing to refinance entails the risk of heavy losses   Every country’s finances have deteriorated significantly, mainly due to expansionary fiscal policies in response to COVID-19. According to the International Monetary Fund (IMF), the ratio of outstanding debt to GDP in developed countries in 2020 will exceed that immediately following World War II, making it the highest since the late nineteenth century. Currently, governments have no choice but to continue to support their economies through fiscal policy. However, a major challenge is the medium- to long-term reduction of fiscal deficit and government debts, which have ballooned to an unprecedented scale. Modern Monetary Theory (MMT) has become a hot topic in relation to how to address ... ... [Read more]