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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.


Japan after 20 years: Japan pledges to end economic spiral

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