Japan Needs More Than Gestures

Reviewed by Takahiro MIYAO

Article:
Japan Needs More Than Gestures
Financial Times (11/03/2008)
http://www.ft.com/cms/s/0/
767e21ce-a947-11dd-a19a-000077b07658.html

Comments:

It might appear that Japan's policymakers are adopting a number of economic measures, both fiscal and monetary, to deal with the current financial crisis facing not only Japan but the global economy. As indicated in the Financial Times article linked above, however, nothing so far has been taken seriously, at least from those foreign observers who are worrying about the recurrence of the severe deflation that Japan once experienced during the "lost decade."

In particular, the interest rate cut by the Bank of Japan (BoJ) from 0.5 percent to 0.3 percent was disappointing and unpopular, as a larger cut was anticipated in the market. As a result, there is some doubt as to how seriously the BoJ governor is taking the current economic situation. The same thing may be said about the financial stabilization-economic stimulus package that Prime Minister Taro Aso has been proposing so far. It looks like both the BoJ governor and Prime Minister are thinking that the Japanese economy is basically sound, as the financial system in Japan is least affected by the global financial crisis among major countries, so what is needed for now is a minimum set of stimulus policy measures to weather the economic storm coming from overseas.

In fact, the Japanese economy was in trouble due to domestic factors, such as credit tightening on real estate, etc. before the subprime loan crisis hit last year. Now, very little money is available for any investment or even daily transactions of small businesses, gradually affecting the big business sector, leading Japan's economy as a whole to a severe recession in the near future. In this process, the recurrence of deflation may well be anticipated, as the prices of natural resources such as crude oil are dropping sharply in the world markets. Therefore, not just "gestures," but more serious anti-deflationary measures should be taken by Japan's policy makers, as suggested by this article.

Acknowledgment:
This review is adopted from the following blog (with its Japanese translation):
http://glocom.blog59.fc2.com/blog-date-20081103.html