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Japan needs all-out efforts to avert economic downturn
Publication Date : 04-10-2012
Japan's economy has taken another turn for the worse.
The government and the Bank of Japan must step up their vigilance and make all-out efforts to revive economic growth.
The short-term quarterly survey of business sentiment compiled by the Bank of Japan in September showed the diffusion index for large manufacturers' current business conditions deteriorated for the first time in three quarters.
The so-called Tankan survey showed the index for large nonmanufacturers leveled off and a bleak outlook is ahead.
About 70 per cent of the more than 10,000 businesses surveyed had sent their responses by early September. Their answers did not fully factor in the effect of the recent chilling of Japan-China relations over the Senkaku Islands. If the survey was taken now, the results would probably have been even more grim.
Seiji Maehara, the new state minister for national policy, said at a news conference held after his appointment, "Fiscal and financial policy will be carried out steadily and seamlessly." The government must act quickly to prevent the economy from worsening.
The biggest concern is the stagnation of foreign demand. The European economic slowdown due to the sovereign debt crisis and slackening growth of China, which is a major exporter to Europe, have dealt a painful blow to Japan's exports and production.
Bold monetary easing vital
The government and the central bank have drawn up a scenario for economic growth recovery in which domestic demand is sustained by reconstruction projects from the March 11, 2011, disaster and subsidies for environmentally friendly vehicles, among other factors, before growth is led by foreign demand. This scenario seems to be coming off the rails.
As part of additional monetary easing measures, the central bank on September 19 decided to increase the amount in a reserve fund used to purchase government and corporate bonds by 10 trillion yen to 80 trillion yen. But it has already been proven that this step will not bring about such desired effects as a correction of the strong yen. Such a piecemeal policy approach is totally inadequate for dealing with the problem.
To prevent the yen from becoming even stronger and to underpin business activity, flexible market intervention depending on market trends and bold additional monetary easing measures will be required.
This week's Cabinet reshuffle is a prime chance for the government to rectify previous economic policy blunders.
Drop 'zero-nuclear' policy
To ensure a stable electricity supply, it is absolutely essential that nuclear reactors be restarted after they are confirmed to be safe to operate. It is indispensable that the government withdraw the policy of ending reliance on nuclear power generation--a policy that will accelerate the hollowing-out of industry and hamper nuclear power plant exports.
Democratic Party of Japan-led administrations have persisted with their avowed handout schemes, delaying the implementation of growth strategy policies for an exit from protracted deflation and low growth.
To enhance growth potential amid Japan's declining population, it will be necessary to create new jobs and make more use of women and senior citizens in the workforce.
Nursing care and medical treatment are promising fields where demand is expected to increase with the aging of the population. Regulations restricting new participation must be eased to encourage private business to enter these markets.
It is also essential to support research and development projects in such growth sectors as energy and the environment, and foster new industries that are internationally competitive.