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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]

No.62, Economy  Jan. 7, 2021

Changing Relationship between a Company and an Individual due to the Crisis

Owan Hideo, Faculty Fellow, Research Institute of Economy, Trade and Industry (RIETI), Professor, Faculty of Political Science and Economics, Waseda University   Much attention has been paid to how the external shock of the COVID-19 pandemic is affecting the relationship between companies and workers. The aging of Japan’s traditional employment system has long been an issue, but even before the Corona crisis, large companies had been working on reforming their personnel systems along with their work styles reform efforts. One example of such attempts is the introduction of “job-based” employment by Hitachi, Ltd.[1] Some believe that the COVID-19 crisis will accelerate the trend. In this article I summarize what has changed due to the crises and explore for what changes are likely in the future. Seniority and late promotion have been cited as problems with the Japanese conventional employment model. These two features were ... ... [Read more]

No.62, Economy  Nov. 29, 2020

A Review of Abenomics: Results in Terms of Escaping Deflation and Positive Economic Change

ITO Takatoshi, Professor at Columbia University, Senior Professor at the National Graduate Institute for Policy Studies (GRIPS)   Key points The “first arrow” succeeded, but the “Price Stability Target” of 2 percent has not been reached Building a framework for monetary and fiscal collaboration to combat COVID-19 Success in terms of TPP11 coming into effect and attracting tourists to Japan   The reason the Abe administration stayed in power for such a long time was that it maintained an approval rating of more than 40%. Moreover, a major contributing factor to that high approval rating was positive macroeconomic change through the success of Abenomics. This paper mainly discusses the Abe administration from December 2012 to September 2020. Let us compare the inflation rate, unemployment rate, and Nikkei Stock Average during the Abe administration with those of cabinets since 1998 (short-lived cabinets are totaled) (see ... ... [Read more]

No.62, Economy  Nov. 20, 2020

COVID-19 Pandemic and the Economy: Need Sound Public Finance for Maintaining Social Safety-Net

Nobuhiro Kiyotaki, Professor of Economics, Princeton University   Key points Should corporate bankruptcies increase, credit crunch may follow Postponing retirement is more effective than high inflation for fiscal consolidation Promoting open economy is important for growth after the containment of COVID-19   Following COVID-19 pandemic and government restrictions on social and economic activities, the global economy plunged into the deepest recession of the postwar era and the lives of people have been affected profoundly. This article discusses the impact of the COVID-19 pandemic, policy responses and the future direction from a macro-economic perspective. The COVID-19 pandemic makes it difficult to engage in activities that involve social contact and possibility of infection. Consumption, especially services consumption in restaurants, leisure and hospitality, has decreased significantly. Let us look at consumption and employment in the United States by referring to data collected by Professor Raj Chetty of ... ... [Read more]

No.62, Economy  Nov. 15, 2020

Future Direction of International Trade Systems: Institutions matter – a rise of “peer value chains”

Inomata Satoshi, Chief Senior Researcher, Institute of Developing Economies, Japan External Trade Organization (JETRO)   Key points Institutional similarity will be even more important in shaping global value chains than geographical proximity Multinational firms will seek to offshore production to countries with robust institutions akin to their home business environment Complete decoupling of the world economy is inconceivable, but partial decoupling is probable   According to Richard E. Baldwin, Professor of the Graduate Institute of International and Development Studies, the international production system is based on tri-polar networks of Factory Asia, Factory North America and Factory Europe. Namely, global value chains (GVC) are not truly global, but are more likely to be regional. How will GVC look like in the post-COVID19 world? They are considered to evolve from regional value chains based on geographical proximity to production networks connected through institutional similarity (of legal ... ... [Read more]

No.62, Economy  Nov. 12, 2020

How to Face up to an Uncompromising China? (II): China’s Economy Towards a Stronger Governance Coexisting with Negotiations/Coordination with US

Ito Asei, Associate Professor, University of Tokyo   Key points Toward an “unknown normality” after the US-China conflict and COVID-19 Stronger governance and a more sophisticated, expanding Chinese economy Japan to continue to exert influence on thoughtful action   The concept of the new normal entered the picture after the advent of the Xi Jinping administration. The end of the rapid economic growth and China becoming a middle-income country transformed national issues. The new normal indicated that the administration recognized this fact. But now, after the US-China conflict and COVID-19, China’s political economy finds itself in an unknown normality in a dual sense. This article will confirm the economic situation during the COVID-19 crisis and examine trends in China from the perspective of structural change. There are both strong and weak aspects to the economy in China after COVID-19. At the start of the ... ... [Read more]

No.61, Economy  Oct. 19, 2020

What to Do with the Public Finances: Revising the Budget Compilation to an Ad Hoc Approach

Iwamoto Yasushi, Professor, University of Tokyo   Key points Correct inconsistencies between targets and predictions for better fiscal soundness Difficulties to compile budget by end of 2021 as planned Initial budget reduction followed by revisions every quarter   The Emergency Economic Measures for Response to COVID-19, which was formulated in April, includes two stages: an “Emergency Support Phase” until the COVID-19 situation is resolved and a “V-shaped Recovery Phase” after it has been resolved. Supplementary budgets of unprecedented scale was put together to realize this, so much that the state’s general account expenditure included large-scale public spending corresponding to about 1.5 times the FY2019 figures. The “Basic Policy on Economic and Fiscal Management and Reform 2020,” created in preparation for the FY2021 budget compilation, and the “Economic and Fiscal Projections for Medium to Long Term Analysis,” which showed economic and public finance projections until ... ... [Read more]