Charles Jannuzi
http://www.japanecho.co.jp/jeu/arti.html#t10
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Scenario for Reviving the Economy and Avoiding Public Finances Breaking Down (Keizai o saisei shi, zaisei hatan o sakeru shinario wa kano da). Interview with Heizo Takenaka, minister of state for economic and fiscal policy. Toyo Keizai, February 9, 2002
A scenario for reviving the economy and avoiding public finances breaking down is possible. In order to do this, two years of concentrated adjustment are necessary. In that time, progress must be made in escaping from deflation and disposing of nonperforming loans. Afterwards, Japan will return to annual growth of nearly 2%, the nation's original growth potential, and public finances can avoid ruin by cutting back on wasteful expenditures. The government can create demand through such measures as deregulation. Meanwhile, it is hoped that the Bank of Japan will continue easing the money supply. Structural reform is unknown territory both for the government and the people, so it is necessary to enter new territory in terms of monetary policy as well. Because this is something that no country has yet experienced, plotting a course to escape from deflation is difficult at the present stage. The government, though, remains resolved to halt deflation. We want to reform the tax system as soon as possible so as to activate the economy, and we want to move forward with reforms so that the system will reward those who work hard and shift favorable treatment from savings to investment. It is important to look at taxes in a broad perspective that includes both economic policy and society in a comprehensive way.
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· The Correlation Between the Unemployment Rate and Migration (Shitsugyoritsu to "hito no ido" no sokan kankei). Kenji Kondo, professor, Chukyo University. Economist, February 12, 2002
The cause of the high unemployment rate that is developing in Japan may be the downward rigidity of the wages of Japanese workers, in which case an influx of immigrants might actually lead to Japan's workers benefiting. If the power of the labor unions declined and wages came down even a little, employment would greatly increase, and the unemployed would find jobs. It cannot be denied that some Japanese workers would suffer a loss in economic well-being if there were a steep drop in wages. However, underemployment would be eliminated, and if the labor market were to move toward full employment the factors of production would be used more efficiently, thus improving productivity. Therefore, the gains made by investors would outweigh the losses suffered by workers. Since the overall impact is positive, an income redistribution policy skillfully implemented by an efficient government would make it possible to share the gains of investors with the whole nation. If it is possible to accept immigrants and at the same time achieve full employment by lowering wages, relaxing immigration policy during a time of high unemployment would boost economic well-being.
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· BOJ Should Buy Real-Estate Investment Trusts and Traded Funds to Combat Deflation (Nichigin wa fudosan-toshin ya ETF o kae). Mitsuhiro Fukao, professor, Keio University. Economist, February 5, 2002.
During the past half century, no other industrial country has seen deflation continue for seven consecutive years. As deflation deepens, stronger medicine is needed to pull the economy back to health. The Bank of Japan should set a target for inflation and announce it publicly. The target rate should be between 0.5 percent and 2.0 percent per year and should be maintained for three years. If it is unable to achieve this, the BOJ's Policy Board should resign to take responsibility.
The most effective method of quantitative easing as a means of halting deflation is to purchase real assets. The BOJ should continue buying real-estate investment trusts, which include high-yield investments, as well as exchange-traded funds linked to the TOPIX index until general prices begin to gradually rise. This approach would be highly welcomed by the market and lead to higher share and asset values. It should also boost consumer prices. If these operations fail to achieve the desired effect, the government must resort to introducing a tax of around 2 percent on government bonds and postal and bank savings balances, effectively adopting a negative interest-rate policy.
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· Incentive-Oriented Tax System to Increase Future Tax Revenues (Shorai no zeishu kakudai no hashira o sodateru tame ni insentibu-gata zeisei no donyu o). Shin'ichi Ichikawa, Credit Suisse First Boston Securities. Toyo Keizai, February 2, 2002
Prime Minister Jun'ichiro Koizumi hopes to launch debate on income tax reform as part of his structural reform agenda. It goes without saying that the tax system is the key element of any supply-side reform, but Koizumi is trying to implement economic reforms during heavy deflation. Things are being made worse by lingering excess supply capacity, which should have been weeded out long ago. To phase out remnants of the Old Economy, new industries must be promoted so as to reinvigorate the economy as a whole and to ensure employment opportunities and tax revenues. For this, unfair and unreasonable tax practices, such as a high taxation threshold and a punishing progressive tax regime for those with higher earned incomes, should be abandoned in favor of incentive-oriented taxes. As the global economy undergoes a major transformation, Japan must fundamentally overhaul its tax system to maintain competitiveness. The Koizumi administration is urged to tackle not only bad loans but also tax reform this year.
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