By Scott Rochfort
More than the LDP’s stimulus package is needed to turn the economy around.
One of Yasuo Fukuda’s final gestures as prime minister illustrated how Japan now faces a very different type of stagnation than the type experienced a decade ago.
Fukuda’s hastily cobbled together 11.7 trillion yen economic stimulus package, supposedly designed to ward off the risk of Japan sinking into another recession, exposed a government without drive and bereft of any long-term plans on how it will steer the economy out of its two-decade rut.
This slump has a lot more to do with the LDP government itself rather than the economy. Rather than buttress Japan against the turbulence buffeting the global economy, Fukuda’s populist-fuelled package has instead added to fears that the government’s reform agenda has become as listless as its economy.
“Around five to ten years ago there was a reasonable sense of urgency,’’ says Macquarie Securities Tokyo-based chief economist Richard Jerram. “There was a sense that getting some growth back into the economy was the largest priority.”
But in response to the discomfort felt across the general public against the bold reforms initiated by Junichiro Koizumi’s government, Jerram says there is now a “dwindling sense of urgency.’’ This lack of urgency can even be seen with the stimulus package, the 15th since the Japanese economy went into hibernation in the so-called “lost-decade” of the 1990s. A stimulus package, while relatively small in size, is set to make the government’s task of reducing the largest public debt in the world even tougher.
Jerram says the peculiar thing about this stimulus package, which was largely aimed to counter rising oil and commodity prices, was its timing: “It’s a straight forward observation that the pain from [higher commodity prices] has started to moderate.’’ When he unveiled his final package, Fukuda said it “was important that we support the people.”
“Global rises in oil and food prices are having a significant impact on the Japanese public,” he said at the time.
Why then did Fukuda fail to do anything when oil prices surged above $140 (11,176 yen) a barrel earlier this year or when rice hit a record high in May? The package was also announced weeks after the biggest commodity boom in a generation started to show signs of deflating. Aside from the recent slide in the price of oil back towards the $100 a barrel mark, other commodity prices have also slumped. Since May, rice prices have slumped around 25 percent and wheat prices have fallen even further.
Fukuda, by his own admission, said his “reforms” came from the “public’s viewpoint.” In the weeks leading up to the announcement of his stimulus package, the former prime minister emphasized the need to pay “attention to the people’s everyday lives” and to listen “intently to pained and anxious voices.”
While this public show of empathy can win votes, the main hope Japan has for a longterm economic revival lies within the business community.
One worry has been the creep of reregulation over the last two years, seen for example over the consumer finance and construction sectors, which has stymied business investment. Another oddity about the government’s stimulus package is that Japan has also dodged much of the fall-out of the US subprime credit crisis. Thanks to house prices and other asset prices having the wind knocked out of them since the early 1990s, Japan is protected from the credit hangover hurting middle and corporate America and other parts of the developed world. Badly burnt from the excesses of the 1980s, Japan’s banks also missed out on the credit party which has now come back to bite the US and European financial sector.
Perhaps the major positive surrounding the current economic challenges facing Japan, compared to the 1990s, is that they are not of Japan’s making. The government just needs to ensure that it goes further than just winning a few votes with its economic policy. It also needs to win the confidence of the business community.