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No.51
No.51, Economy  Feb. 25, 2019

China’s Forty years of Reform and Opening: Industrial Advancement will be Inevitable for Growth

Key points China is standing at the crossroads of the middle-income trap The reform of state-owned companies will proceed with difficulty because there are multiple vested interests New startups are rising and will drive industrial advancement Forty years ago, in 1978, China embarked on reform and opening up. It achieved rapid economic growth, surpassed Japan in terms of GDP in 2010 and grew to be the world’s second largest economy. After its transition to reform and opening up, China carried out painful domestic reforms of negative heritage, such as state-owned companies saddled with chronic deficits and financial institutions engulfed by nonperforming loans to reconstruct the devastated economy under a centrally planned economy. Externally, by opening up China not only introduced technologies, capital and business management from overseas, expanded exports and increased foreign reserves, but also increased employment and tax revenue. There is no doubt ... ... [Read more]

No.51
No.51, Economy  Feb. 7, 2019

Focal points of the discussion on the expansion of the acceptance of foreign workers: The need to improve productivity should be highlighted instead of making numerical adjustments

Key points There is concern that efforts to improve productivity will be put on the back burner due to increased acceptance An increase in the number of foreign residents has little negative impact on the workers of the country in which they work Efforts should be made to enhance welfare support and review employment practices The Government has submitted a proposal to the Diet to revise the law on immigration control with a view to expanding the acceptance of foreign workers. It is not unusual for us to see foreigners working at convenience stores and izakaya pubs in town. Given the aging population, what needs to be urgently addressed is the acceptance of foreigners who engage in nursery services. In addition, with concern about the workforce shortage continuing into the future as a result of the declining population, an increase in the number of ... ... [Read more]

No.51
No.51, Economy  Jan. 9, 2019

In preparation for the worst-case scenario of a national default: Can the current generations resign themselves to the costs for the future generations?

Prof. Kobayashi Keiichiro

Governments don’t default? The Logic of Infallibility undermines Japan While the realities of the Japanese economy are progressing smoothly, with stocks surging and competition on the employment front becoming overheated, it is widely known that government finances are continuing to worsen. Some may be concerned that if the present situation holds, a national default will occur. Unless confidence in the Japanese economy is lost, chances are slim that a default will occur within ten years. But because government debt will continue to increase if government finances are not reconstructed, a financial collapse is certain to occur someday. That time may be in the next twenty to forty years, a point of time in the long-term future. But the possibility of a national financial failure is a matter that each of us has to consider in our life in the sense that it will occur ... ... [Read more]

No.50
Economy, No.50  Nov. 28, 2018

Moving toward Electric Vehicles Will Cause Dramatic Changes in Oil Consumption: Rising Dependence on the Middle East and Geopolitical Risks

  Oil occupies a central position in the global energy market. In the 2000s (2000 to 2007), global demand for oil grew at an average rate of 1.3 million barrels per day (Mb/d) due to such issues as brisk demand in China. At that time, peak oil theory (theory of an oil supply peak) received wide coverage. Excess liquidity in financial markets caused crude oil prices to soar, resulting in a tight supply and demand balance, which emphasized concern about a supply peak. Policies and lifestyles will continue to change in response to trends in the Reference Scenario in the IEEJ Outlook 2018 prepared by the Institute of Energy Economics, Japan (IEEJ). Accordingly, global oil demand will grow from 90 Mb/d in 2015 to 122 Mb/d in 2050. Demand for oil will decrease by 9 Mb/d in Organisation for Economic Co-operation and Development (OECD) ... ... [Read more]

No.50
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]

No.50
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]

No.50
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]

No.50
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]

No.50
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]

No.50
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]