Tokyo unveils barrier to 'tsunami' of woe
Saturday, 20 December 2008
Mure Dickie and Robin Harding
FOR Taro Aso, the Japanese prime minister, the multi-trillion yen "Emergency Measures for the Defence of Livelihoods" he unveiled late last week are a vital effort to shield his nation from worldwide financial and economic turmoil.
"The current recession is said to be on such a scale as only comes once in a century and Japan cannot remain untouched by the tsunami," Mr Aso told a nationally televised press conference.
Despite the shield of a relatively solid banking sector, Japan's economy shows little sign of any return to growth and newspapers and television programmes are full of tales of the individual woe caused by widening corporate lay-offs.
Adding to the pressure on the economically pivotal export sector, the yen late last week surged to a 13-year high, threatening corporate profits and the already battered stock market.
The yen soon fell back from its high of 88.58 to the dollar, but its jump fuelled renewed speculation that Tokyo would intervene in the currency markets - something Shoichi Nakagawa, the finance minister, insisted he was not even thinking about.
The big question, of course, is whether Mr Aso's measures - which carried a headline price tag of Y23,000bn ($252bn, euro 189bn, £169bn) but involve far less in real new spending - are a doughty enough dyke to defend Japan from the global wave of bad news. The initial reaction of economists was sceptical, not least since the package's new Y4,000bn in government outlays and tax cuts would be equivalent to well under one per cent of gross domestic product (GDP), even if it flowed through into productive economic activity.
Satoru Ogasawara of Credit Suisse in Tokyo said that while the package might help slow the current GDP contraction, it was far from enough to end it.
"We are not expecting this package to have any significant effect on the Japanese economy," Mr Ogasawara said. "We don't want to sound depressing but, looking at the [economic] data, it is already depressing."
Still, the measures should at least ease the pain of recession for some. Mr Aso cited in particular the need for urgent action on the plight of sacked workers who lose their company-provided homes along with their jobs. His plans to subsidise unemployment insurance and boost unemployment benefits are backed even by administration fiscal hawks. Meanwhile, the planned Y3,000bn in credit for companies could help offset the impact on healthy businesses of risk-shy banks' reluctance to lend.
With the government labouring under a huge debt burden and facing a dearth of good infrastructure investment opportunities, reluctance to splash out on stimulative spending is understandable.
"You have to care about budget discipline, too," one finance ministry official said. "[The package] is a good balance and it's focused on urgent issues that people are facing."
Still, Mr Aso's measures are unlikely to quieten calls both at home and abroad for Tokyo to do more to get back to growth.
Much of the latest package will only be funded and implemented in the fiscal year starting April. If then judged insufficient, the political price for the embattled prime minister and his long- ruling Liberal Democratic party could be considerable. With a general election to be held by September, Mr Aso and his LDP comrades may end up needing emergency measures to defend their political livelihoods.
Yet only limited stimulative effect can be expected from Mr Aso's planned tax cuts for home owners and corporate investors in capital equipment.
Home owners are hardly the most vulnerable segment of Japanese society and many will be inclined simply to add any gains to household savings, while tax incentives for investment will mean little to the many companies already struggling to fill existing production capacity.
Critics will surely still insist Japan should do more to contribute to global recovery by boosting domestic demand. But with the government labouring under a huge debt burden and facing a dearth of good infrastructure investment opportunities, reluctance to splash out on stimulative spending is understandable.
FOR Taro Aso, the Japanese prime minister, the multi-trillion yen "Emergency Measures for the Defence of Livelihoods" he unveiled late last week are a vital effort to shield his nation from worldwide financial and economic turmoil.
"The current recession is said to be on such a scale as only comes once in a century and Japan cannot remain untouched by the tsunami," Mr Aso told a nationally televised press conference.
Despite the shield of a relatively solid banking sector, Japan's economy shows little sign of any return to growth and newspapers and television programmes are full of tales of the individual woe caused by widening corporate lay-offs.
Adding to the pressure on the economically pivotal export sector, the yen late last week surged to a 13-year high, threatening corporate profits and the already battered stock market.
The yen soon fell back from its high of 88.58 to the dollar, but its jump fuelled renewed speculation that Tokyo would intervene in the currency markets - something Shoichi Nakagawa, the finance minister, insisted he was not even thinking about.
The big question, of course, is whether Mr Aso's measures - which carried a headline price tag of Y23,000bn ($252bn, euro 189bn, £169bn) but involve far less in real new spending - are a doughty enough dyke to defend Japan from the global wave of bad news. The initial reaction of economists was sceptical, not least since the package's new Y4,000bn in government outlays and tax cuts would be equivalent to well under one per cent of gross domestic product (GDP), even if it flowed through into productive economic activity.
Satoru Ogasawara of Credit Suisse in Tokyo said that while the package might help slow the current GDP contraction, it was far from enough to end it.
"We are not expecting this package to have any significant effect on the Japanese economy," Mr Ogasawara said. "We don't want to sound depressing but, looking at the [economic] data, it is already depressing."
Still, the measures should at least ease the pain of recession for some. Mr Aso cited in particular the need for urgent action on the plight of sacked workers who lose their company-provided homes along with their jobs. His plans to subsidise unemployment insurance and boost unemployment benefits are backed even by administration fiscal hawks. Meanwhile, the planned Y3,000bn in credit for companies could help offset the impact on healthy businesses of risk-shy banks' reluctance to lend.
With the government labouring under a huge debt burden and facing a dearth of good infrastructure investment opportunities, reluctance to splash out on stimulative spending is understandable.
"You have to care about budget discipline, too," one finance ministry official said. "[The package] is a good balance and it's focused on urgent issues that people are facing."
Still, Mr Aso's measures are unlikely to quieten calls both at home and abroad for Tokyo to do more to get back to growth.
Much of the latest package will only be funded and implemented in the fiscal year starting April. If then judged insufficient, the political price for the embattled prime minister and his long- ruling Liberal Democratic party could be considerable. With a general election to be held by September, Mr Aso and his LDP comrades may end up needing emergency measures to defend their political livelihoods.
Yet only limited stimulative effect can be expected from Mr Aso's planned tax cuts for home owners and corporate investors in capital equipment.
Home owners are hardly the most vulnerable segment of Japanese society and many will be inclined simply to add any gains to household savings, while tax incentives for investment will mean little to the many companies already struggling to fill existing production capacity.
Critics will surely still insist Japan should do more to contribute to global recovery by boosting domestic demand. But with the government labouring under a huge debt burden and facing a dearth of good infrastructure investment opportunities, reluctance to splash out on stimulative spending is understandable.