Japan after 20 years: Japan pledges to end economic spiral By Leo Lewis, Asia Business
Correspondent - December 30, 2009 - From Times Online
Japan’s
four-month-old Government, already reeling from a political
funding scandal and dwindling public support, today vowed
to enlarge the economy by 150 trillion yen (£1 trillion) and
haul the nation out of a “long, downward-sloping tunnel”.
The Democratic Party of Japan said that the scheme would
deliver annual real GDP growth of at least 2 per cent between
now and 2020 and create more than 4 million new jobs over
the same period.
The strategy, which was laid out on Japan’s final market
trading day of 2009, is thought to be an attempt by the Government
to quash rising domestic fears over the country’s gargantuan
mound of public debt. The debt equates to about 180 per cent
of GDP and will probably hit 200 per cent in the wake of the
record budget announced last week.
Halfway through the Government’s ten-year plan, Japan's debt
relative to GDP may rise to 246 per cent, according to analysts
from the International Monetary Fund.
The ambitious ten-year plan would see Japan shift some of
the focus of its giant economy, with new emphasis placed on
environmental technology, science, tourism and medical care.
The growth blueprint, which some investors said “smacked
of desperation”, also vowed to expose Japan more closely to
growth in Asia. So far, despite its geographical proximity
to China, Vietnam and Indonesia, Japan has not managed to
fully leverage itself to their growth.
The mid-term strategy, which economists said would not immediately
affect their outlook for Japan’s deflation-scarred economy,
was viewed by some as an attempt by Yukio Hatoyama, the Prime
Minister, to establish his credentials as a force for economic
good.
Ryota Sakagami, chief Japan economist for Nomura, said: “The
Government has regularly been criticised for its lack of a
longer-term growth vision, and this strategy seems to be in
response to that criticism.”
The Government, in the preface to its strategy document,
said: “What we need the most now is to show the public a vision
for Japan's future ... and a political leadership that can
move foward policies towards that goal.”
Addressing his Cabinet, Mr Hatoyama said that Japan lacked
confidence, hope and a “sense of feeling that things will
be all right if we pursue a certain path”.
In keeping with the DPJ’s recent tone, the Prime Minister
also attacked Japan’s previous focus on market capitalism
— a system, he said, that did not lead to growth for the entire
nation. "We changed the past idea that was biased toward
[encouraging] the supply side, and we intend to firmly generate
demand,” he said.
However, analysts were quick to question how Mr Hatoyama’s
grand ambitions will be paid for.
Nurturing a thriving “green economy” and training millions
of young people to be nurses will require massive funding
just as the Government is under pressure to finally apply
some fiscal discipline to Japan’s public coffers.
The plan was announced amid intensifying concerns about the
stability of Japanese government bonds (JGBs).
Since its property bubble burst 20 years ago, Japan has borrowed
heavily to stimulate the economy and recent years have seen
the level of debt spiral wildly.
The extraordinary levels of borrowing have largely been financed
by Japanese households, which currently hold about 60 per
cent of government bonds and have been reliable buyers through
thick and thin. However, as the baby-boomers retire and savings
rates plunge, that process may sputter.
Yesterday’s growth blueprint and the 2 per cent “line in
the sand”, political analysts said, may have been designed
to persuade the Japanese public that its money is still worth
putting into JGBs.
The Government recently said that it expects GDP to grow
at 1.4 per cent in the coming financial year, rebounding from
the 2.6 per cent contraction in fiscal 2009, the country’s
steepest recessionary plunge since the Second World War.