Japanese Economy: Comparisons and Current Issues
Takahiro Miyao (Professor, GLOCOM)
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The Japanese economy is in trouble because of asset deflation. The importance of assets, especially stocks and real estate should be more widely recognized, because the sheer size of Gross National Assets is about $71 trillion, which is 18 times as large as the size of GDP. For the last ten years or so, the total value of losses in the stock and real estate markets has amounted to at least $12 trillion, that is three times as large as GDP.
In order to reverse the current negative trends, Japan must focus on assets and adopt policies to revitalize asset markets. For example, the government should eliminate capital gains taxes for both stocks and real estate, and adopt the mortgage interest tax deduction of the U.S. type. This is an alternative approach to the Koizumi-Takenaka approach, which emphasizes the disposition of bad loans. The asset market revitalization approach is much better in that increasing asset values would improve individual and corporate balance sheets, while reducing the size of bad loans at the same time.