A revitalised Japan is good for everyone
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Japan as the third-largest economy has for years had to endure criticism for failing to support an equitable global rebound. Stimulus packages were misspent on patronage projects, as an example. Deregulation to spur new investment was never seriously atte
However, beginning this month, its central bank seems determined to try a fresh approach in massive monetary easing in the hope of defeating deflation. The goal is a fresh spurt of GDP growth to restore a sense of national purpose. Its heft will be added to China’s and that of other propulsive economies, like Brazil and India, to pull the world over a hump.
Early signs have been heartening. Exports are improving, the Nikkei stock index is up by 7 per cent. Endorsement has come from the International Monetary Fund, which last week raised Japan’s growth forecast for the year by one-third to 1.6 per cent, from 1.2 per cent.
Much is still not known about the consequence of too much money and production over-capacity, but any plan that will double the base money supply to nearly US$3 trillion in two years must qualify as the monetary equivalent of shock and awe. It will be twice the strength of America’s monetary stimulus. Will it work? Judgement should wait. For now, willingness to go beyond textbook prescriptions looks more sensible than persisting with old policies.
There are risks. Monetary tools used in isolation could misfire. Home demand may not rise in response to a managed price spiral. This could happen if older Japanese of means are disinclined to spend more, while younger consumers, who want to, cannot as the jobs-and-income scope has shrunk. So savings plans and labour practices need review.
If a domestic boost does not materialise to the extent envisaged, it could look like an export boost by driving down the yen was the chief purpose of quantitative easing. That will give Japan’s main trade partners like China and South Korea plenty of ammunition. Also, capital flows to higher-yield destinations could cause bubbles in unproductive asset classes such as property.
Southeast Asia and Australasia are susceptible and need to be vigilant. Still, a revitalised Japan that may emerge from all this will be good for all. The planners can steer the programme in the desired direction by expediting structural reforms. Sectors like agriculture, power generation and even cars are better exposed than protected.
Prime Minister Shinzo Abe has set reform as a policy goal, besides the monetary easing. But it is the confidence to plan systematically for the future that will determine sentiment, which has to be sustained as results will take time.
