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Economy, No.47  Jun. 15, 2018

Asia’s Growth and Japan II: Large Cities Enjoy the Benefits of the Demographic Bonus

Key Points: Shanghai’s per capita GDP is equal to those of high-income countries. The percentage of young people in large cities is higher than at the country level. There are concerns about the acceleration of population aging in the regional areas and agricultural villages in the near future. The future of the economies of East Asia (China, Asian Newly Industrializing Economies (NIEs) and the Association of Southeast Asian Nations (ASEAN)) depends on the cities. Back in 1950, the percentage of urbanization (the rate of the urban population to the total population) in East Asia was just 17%, well below the global average of 30%. At that time, cities were exceptional areas in East Asia. The percentage of urbanization subsequently rose rapidly, however; it surpassed 50% in 2010 and hit 57% in 2015, exceeding the global average of 54%. East Asia shifted from a rural ... ... [Read more]

Economy, No.47  Jun. 12, 2018

Asia’s Growth and Japan III: Understanding the Values Attached Locally is the Key

Key Points: A proper understanding of Asian markets is indispensable for building strategies. Values related to consumption vary from one region to another. Look for the key to adjustment to local conditions in visitors from abroad. Japanese companies’ forays into overseas markets are heating up. According to the 2017 edition of Kaigai shinshutsu kigyo soran (Source Book on Japanese Companies Expanding Operations Overseas, published by Toyo Keizai Inc.), the highest ratio of companies establishing subsidiaries abroad, 30% of surveyed firms, cited overseas market development as the objective for establishing them. Companies with subsidiaries in Asia comprised 72% of them. Asia is attracting attention to this extent. Naturally, we see many companies advancing into Asian markets to develop an overseas production network. However, we should not forget that many of the overseas manufacturing plants that those companies have established in recent years are meant for ... ... [Read more]

Economy, No.47  Jun. 9, 2018

Agenda for BOJ Governor in Second Term II: Further commitment to do whatever it takes to achieve 2% inflation target entails a risk—It is important to return to the principles of the “joint statement.”

Key Points: Inconsistent priorities have made monetary policy inflexible. The 2013 joint statement called for the establishment of a sustainable fiscal structure. A widening disparity between BOJ’s words and actual intentions appears to involve a risk. The Bank of Japan (BOJ) has demonstrated its unwavering dedication to the achievement of a 2% inflation target over the last five years. In his inaugural news conference held five years ago, Governor Kuroda Haruhiko referred to the joint statement announced by the government and the BOJ in January 2013 by saying, “It can be summed up as we will do whatever it takes to achieve 2% inflation at the earliest date possible.” Deputy Governor Iwata Kikuo also expressed his strong commitment to achieving the price stability target no matter what the situation would be by saying, “We should not make excuses by saying that it wasn’t our ... ... [Read more]

Economy, No.47  Jun. 4, 2018

Agenda for BOJ Governor in Second Term I: Japan’s Deflation Is Almost Fixed but Needs Some Modifications—No Further Reflationary Policy Required

Key Points: Avoid real wages falling amid inflation targeting Improve messaging and reduce purchases of exchange-traded funds (ETFs) Further monetary easing policy may face criticism from abroad It has been five years since Kuroda Haruhiko was inaugurated as governor of the Bank of Japan (BOJ). The government has nominated Mr. Kuroda for a second term. Mr. Kuroda’s nomination was among those submitted to the Diet, which included nominations for two new deputy governors for the bank. In this article, I intend to review the BOJ’s monetary policy over the past five years and point out challenges confronting Japan’s central bank, which will be led by the reappointed governor. BOJ Governor Haruhiko Kuroda launched a dramatic monetary policy aimed at achieving a 2% inflation rate, introducing quantitative and qualitative monetary easing (QQE) soon after he came on board in April 2013. The BOJ announced the ... ... [Read more]

Economy, No.47  May. 27, 2018

Leverage Longer Lifespans to Boost Growth: Japan Center for Economic Research Medium-Term Economic Forecast — Build working-senior friendly society

Points: Japanese economic growth rate set to slow under present circumstances Lifetime consumption rising with longer lifespans and working careers Boost consumption tax to 15% to provide for greater job diversity The Japanese economy continues to expand thanks to strong economies abroad. However, caution is still needed in assessing the medium-term economic outlook. In our Medium-Term Economic Forecast, we consider the relevant issues. World economic growth rates are rising in the short term, led by developed countries. The International Monetary Fund (IMF) revised in January their forecast a high of 3.9% world economic growth rate for 2018. Hidden in the backside, however, are a number of downside factors, and we believe that rates will slow over the medium term. The first factor is a structural one, namely the erosion of the United States potential growth rate, which gauges the long-term production capacity of the ... ... [Read more]

Economy, No.46  May. 21, 2018

HondaJet: Fulfilling the Dream of Soichiro

  As HondaJet continues its successful demonstration tour of Europe, Katayama Osamu looks back on the development of the aircraft, the fastest, highest-flying, quietest, and most fuel-efficient jet in its class. A red and white aircraft landed at Haneda Airport under a blue sky on 23 April 2015. It was a proud moment for HondaJet, whose development has been ongoing for approximately thirty years, since 1986. On the first day of its world tour en route to Japan and Europe, HondaJet made its first appearance outside the United States. At the commemorative press conference on the same day, the president of Honda Motor Co., Ito Takanobu, said, “Ever since its foundation, Honda has always had a dream of flying in the sky. Today, the dream that was held by the founder, Honda Soichiro, and the dream to enter the aircraft industry, thereby achieving three-dimensional mobility, have been ... ... [Read more]

Economy, No.46  May. 17, 2018

Interview: The Future of Digital Currencies

The fluctuations in the value of Bitcoin, an Internet digital currency, are becoming more and more rapid. People can use Bitcoin as money in an increasing number of shops, but is unstable Bitcoin a currency? In the modern age, the existence of currencies that were managed monopolistically by states has been shaken by technological progress. The Asahi Shimbun asked economist Iwai Katsuhito, who is known for his theory of money, about the relationships between digital currencies, central banks and states. After Bitcoin rose sharply to more than 2 million yen at the end of last year, from about 100,000 yen a year ago, it fell and showed volatile swings. Can we say that it is a new currency? Iwai Katsuhito: Since Bitcoin emerged in 2009, I have considered the possibility of it becoming a currency. But I have changed my mind in the last ... ... [Read more]

Economy, No.46  May. 11, 2018

Medical and Nursing Care Expenses and Social Security

After 2025, by when the baby-boomer generation will have turned 75, medical and nursing care expenses will be a severe issue. How should we construct an efficient system of benefits and payments? The author will describe the organization of the current system and measures for efficiency and consider a realistic solution. 1.Rapidly rising medical and nursing care expenses It is widely known that medical and nursing care expenses have been increasing along with the aging population. As we move closer to 2025, when the youngest baby-boomer will turn 75, we cannot find effective measures for rapidly rising medical and nursing care expenses. At the beginning of this discussion, the author will describe the organization of the current situation of medical and nursing care expenses. According to the “The Financial Statistics of Social Security in Japan ” published by the National Institute of Population and ... ... [Read more]

Economy, No.46  May. 1, 2018

Stalled Fiscal Consolidation:Private-Sector Financial Asset Surplus is Key

Key points: Private sector financial surplus can offset government financial deficit Domestic liquidity may be tight in second half of 2020s Long-term interest rates could rise before deficit in current account At a meeting of the Council on Economic and Fiscal Policy last January 23, the Cabinet Office announced its “Economic and Fiscal Projections for Medium to Long Term Analysis.” The projections show that, even if economic growth is achieved as targeted under its growth scenario, the government now projects that a surplus will not be achieved in the central and local government primary balance until the fiscal year ending March, 2028, or two years later than the last projection made in July, 2017. Debt repayment will be limited since a portion of the increased revenue from the October 2019 consumption tax hike will be allocated to childcare support, and total factor productivity (representing ... ... [Read more]

Economy, No.46  Apr. 6, 2018

Blueprint for the Future of Social Welfare (II) : Limiting State Responsibility to the Guaranteed Minimum

Key Points Japan has lagged behind in terms of human investment because of excessively expanded social insurance. Low-income earners are disadvantaged in terms of the social insurance burden and benefits. Reforms are needed that require middle- and high-income earners to make self-help efforts. The government has published the “New Economic Policy Package”, and drafted the fiscal 2018 Budget  including annual tax reforms, with human resource development as the central pillar. I do not object to this direction, but there has been little analysis and verification of problems in the existing system based on data and evidence. The burden will be forced on children who lack voting rights if the budget deficit increases to improve childcare and education. In this article, I will discuss the tasks and remedies for overcoming the declining birthrate and aging population. Human capital investment is a common issue in advanced ... ... [Read more]