Devise effective strategy for robust economic recovery
The nation's economy has finally begun to recover on the back of robust consumer spending and reconstruction projects launched after the Great East Japan Earthquake.
It is crucial that the government use this tailwind to put the Japanese economy on a solid growth track.
Japan's real gross domestic product for the January-March quarter of 2012 grew 1 percent from the previous quarter, marking positive growth for three consecutive quarters. GDP grew at a high rate of 4.1 percent on an annual basis.
Consumer spending, which accounts for 60 percent of GDP, marked its fourth straight quarterly increase. This was largely due to a surge in new car sales after a subsidy program for purchases of environmentally friendly vehicles was reinstated late last year. Consumption on entertainment, including amusement parks, also was brisk.
More than one year has passed since the March 11, 2011, disaster. It seems consumer sentiment, which cooled due to a mood of self-restraint that enveloped the nation after the catastrophe, has started to pick up.
Also, public investment increased for the first time in three quarters. We think it is safe to say that economic growth is being led by domestic demand.
Recovery at crucial stage
Implementation of the almost 20 trillion yen reconstruction budget will soon enter a crucial stage. The government expects the economy will continue to log positive growth in the April-June quarter, supported by demand created by reconstruction projects.
However, the ability of public expenditures to prop up the economy is limited. There is concern that the economy could lose steam in summer and beyond.
The subsidy program for eco-friendly car purchases is scheduled to expire at the end of January next year, but its budget--which totals about 300 billion yen--could run out as early as this summer. If the subsidies end earlier than planned, car sales will inevitably drop sharply after the initial surge.
Reconstruction projects also will end up sitting idle if rebuilding plans for disaster-hit areas do not progress smoothly.
A looming electricity shortage this summer also could put a brake on production and further accelerate the hollowing-out of domestic industries.
The government should steadily implement policies, including reconstruction support and the reactivation of idled nuclear reactors after confirming they are safe.
Upward pressure on the yen has intensified as concern mounts that the European financial crisis may flare up again due to recent political turmoil in Greece. This could drag down Japan's exports, which had only just started to recover.
The government and the Bank of Japan need to muster the resolve to intervene in foreign exchange markets and take additional monetary-easing measures--if necessary--to prevent the yen from appreciating excessively.
Focus on quality not quantity
A strategy for growth led by private-sector demand must be accelerated while reconstruction projects and other measures are having an effect.
The growth strategy mapped out under the administration of former Prime Minister Naoto Kan two years ago incorporated about 400 measures. A government check of how these measures had been implemented found less than 10 percent had produced favorable results. The Kan administration's growth strategy was merely an empty slogan.
The Cabinet of Prime Minister Yoshihiko Noda is discussing a strategy for Japan's revitalization at the government's Council on National Strategy and Policy, which comprises cabinet ministers and representatives from business circles.
We urge the government to formulate an effective strategy by carefully selecting policies, rather than including every scheme in a bid to try to please everyone.
(From The Yomiuri Shimbun, May 18, 2012)