Suchergebnisse

An introduction to the Japanese economy -- Historical background of the Japanese economy -- Economic growth -- Business cycles, and a boom and bust -- Financial markets and supervision -- Monetary policy -- Public finance -- Saving, demography, and social security -- Industrial structure -- The labor market -- International trade -- International finance -- Us-Japan economic conflicts -- Lost two decades.

Recent academic papers have shown that the Japanese sovereign debt situation is not sustainable. The puzzle is that the bond rate has remained low and stable. Some suggest that the low yield can be explained by domestic residents' willingness to hold Japanese government bonds (JGBs) despite its low return, and that as long as domestic residents remain home-biased, the JGBs are sustainable. About 95% of JGBs are currently owned by domestic residents. This paper argues that even with such dominance of domestic investors, if the amount of government debt breaches the ceiling imposed by the domestic private sector financial assets, the JGB rates can rapidly rise and the Japanese government can face difficulty rolling over the existing debt. A simulation is conducted on future paths of household saving and fiscal situations to show that the ceiling would be breached in the next 10 years or so without a drastic fiscal consolidation. This paper also shows that the government debt can be kept under the ceiling with sufficiently large tax increases. The JGB yields can rise even before the ceiling is hit, if the expectation of such drastic fiscal consolidation disappears. This paper points out several possible triggers for such a change in expectation. However, downgrading of JGBs by credit rating agencies is not likely to be a trigger, since past downgrades have not produced any change in the JGB yield. If and when the JGB rates rapidly rise, the Japanese financial institutions that hold a large amount of JGBs will sustain losses and the economy will suffer from fiscal austerity, financial instability, and inflation.

In this report, we identify some specific concrete steps Japan can take to jump start growth. Our recommendations are organized around three broad themes: regulatory reform, opening up the Japanese economy, and improving macroeconomic policies. Section 2 identifies four types of regulatory relief that would improve growth in Japan. One set of changes show how to reduce the cost of conducting business in Japan. Each of these is achievable and together they would modestly improve business conditions and the efficiency of doing business in Japan. We also explain how to stop the protection of zombie firms, and identify several other government regulations that also discourage productivity growth, especially in the non-manufacturing parts of the economy. An approach that Koizumi government tried for deregulation was the creation of structural reform special zones. As our earlier report found, these special zones had mixed results, so we also explain the conditions that a special zone should satisfy to be growth enhancing. Section 3 examines the gains that can be achieved by opening up the Japanese economy. One avenue for doing this is via the Trans-Pacific Partnership (TPP), which Japan has finally decided to join the negotiation. We explain why participating in this deal is desirable. A perpetual road block to trade negotiations in Japan has been the pressure from agricultural interests to protect that sector from competition. Productivity gains in the Japanese agricultural sector have been dismal and we also discuss policies that could help improve that situation. A third path to openness is through increased immigration. We sketch immigration reforms that would be growth enhancing. Section 4 explores the growth impediments resulting from poor macroeconomic policies. The threat of a debt crisis that could cripple Japanese growth is real. We explain why a credible plan for fiscal consolidation is necessary and propose some principles that should be part of such a plan. Monetary policy has also been bad since the Bank of Japan's legal independence. We identify the type of monetary policy framework that is necessary to end more than a decade long deflationary period. Section 5 offers some brief conclusions.