TOKYO (The Japan News/ANN) - Despite bright signs, Japan's economic recovery lacks intensity.
Will the path to economic revitalisation be realised and can society gain a foothold to restore its vitality? The year 2017 will be a crucial stage.
Though there are bright signs, the economic recovery lacks intensity. Consumers’ purse strings are tight, and companies are reluctant to invest.
Without dispelling the fearful mind-set that has taken root due to “the lost 20 years” after the collapse of the bubble economy, foundations for development cannot be built. Companies’ “power to earn” must be heightened without turning eyes away from structural problems such as depopulation and aging. This year should be one that restores growth led by the private sector.
The Abenomics economic policy package, which aims to break away from deflation, has entered its fifth year.
Corporate earnings have improved due to monetary easing and fiscal measures. However, a virtuous economic cycle has not emerged, as consumption and investment have not expanded.
This is because the growth strategy, the “third arrow” of Abenomics, has not progressed as hoped.
The nominal gross domestic product in fiscal 2015 stood at 532 trillion yen, almost the same as 20 years ago. The prolonged low growth that is gradually weakening the strength of the nation is more serious than the situation in the United States and Europe.
The potential growth rate, an indication of real economic strength, has significantly dropped to a range of about zero per cent to 0.5 per cent, from the 3 per cent range in the early 1990s.
The government and private sector should synchronise their actions to raise the intensity of growth.
No matter how situations develop, businesses are the main players. Companies should devote themselves to offensive management without passing up on new opportunities.
Next-generation technologies, including the internet of things (IoT), artificial intelligence and robotics, are changing society drastically.
It is vital to take advantage actively of the tidal stream of what is being called “the fourth industrial revolution,” following on from earlier revolutionary shifts brought about by steam power, electricity and computers.
Products made by Japanese companies are high quality but often have excessive functions. They sometimes suffer from “Galapagos syndrome,” differing from global standards and lagging behind international competitiveness. Companies should change their inward-facing approach and must adopt global strategies to utilise their technological strengths.
There are many industrial fields that can yield added value by increasing productivity. Viewed from a different perspective, depopulation and aging could be considered a “gold mine” of business opportunities. Such fields as nursing care, child care, education and agriculture are potential growth markets.
The government should ease regulations and promote reforms of the subsidy and tax systems more boldly, thus supporting new investment by companies and the launch of new businesses. Requests from the private sector should be meticulously reflected in these areas.
The decline in the population will directly hit regional economies. Promotion of tourism may offer a hint on invigorating regional companies and expanding the base for growth. With both local governments and businesses joining hands, attractive tourism resources should be developed and widely promoted both at home and abroad.
Utilise dormant funds
Also not to be overlooked are the roles assumed by regional banks, such as supporting the revitalisation of regional companies, while honing their own ability to decide whether to finance companies on the basis of their future potential, rather than focusing on borrowers’ real property offered as a security. Regional banks’ contribution will help reinvigorate regional economies.
The financial assets of private households top 1.7 quadrillion yen, and the internal reserves of private companies amount to 370 trillion yen. It will be necessary to devise ways to utilise these dormant assets for economic vitalisation.
Also essential are government efforts to dispel people’s concern over their livelihoods.
While nonregular workers have come to account for 40 per cent of the total workforce, an increasing number of people have been unable to retain their confidence in wage hikes and job security in the future.
Amid the low birthrate and a graying society, concerns are also growing over the programmes for the public pension and nursing care for elderly people. To realise a robust economy, it is urgently necessary to rebuild employment and the social security system.
The government must steadily promote “work style reforms.” Needed are measures to increase the number of regular employees by allowing more diverse working styles, such as short-time regular work.
In enhancing the sustainability of the social security system, the issue of what to do with the financial resources is unavoidable. But public finances are in a critical situation.
The combined long-term debts of the national and local governments are projected to top 1 quadrillion yen as of the end of fiscal 2016, twice as much as the nation’s gross domestic product. The 2020s, a decade when baby boomers will turn 75 or older, are just ahead. Social security benefit payments will rise sharply, which may worsen the state of public finances.
It is also considered difficult to realise the government’s target for bringing the combined primary balances of the central and local governments into the black by fiscal 2020. In light of the postponed hike in the consumption tax rate, it is necessary to drastically review the road map to realise the integrated reform of social security and the tax system.
Now that nearly four years have passed since the Bank of Japan launched what it calls a new dimension of monetary easing, it has come to a turning point. The central bank is still far from realising its target of 2 percent inflation in two years.
Following its negative interest rate policy, it has adopted a new method of monetary policy by shifting its emphasis from “quantity” to “interest rates.”
It has been pointed out that the central bank faces such challenges as whether it can smoothly carry out its unprecedented efforts to guide the long-term interest rates to targeted levels, as well as how the higher prices of imports, caused by the declining value of the yen, will affect the bank’s policy.
The Bank of Japan should also do its utmost to strenuously underpin the economy from the monetary side in the future, while discerning the effects of its new methods.