Kan not up to economic challenge: experts

Economists say leader has right focus on jobs but wrong approach

by Kazuaki Nagata

Prime Minister Naoto Kan has survived an internal power struggle and reshuffled his Cabinet, but some economists wonder if he will be able to successfully lead Japan through the economic challenges ahead of it.

Two economists interviewed by The Japan Times on Friday said Kan’s focus on job creation is good but that the measures he has advocated so far are not effective. They said Kan should focus first on measures to promote economic growth, which will thus create jobs, and start with measures to strengthen corporate competitiveness, such as deregulation and tax cuts.

“Kan should say that employment comes only after economic growth. When he says more employment can ease deflation, it raises the question how jobs will be created,” said Jun Tsukasa, a senior analyst at Nikko Cordial Securities Inc.

Tsukasa said the government should encourage Japanese firms to keep their manufacturing plants in Japan by promoting deregulation and corporate tax cuts so they can compete more freely with foreign rivals.

Mitsuru Saito, chief economist at Tokai Tokyo Securities Co., agreed.

“The (domestic) industries that can create jobs have been hollowing out not only in Japan, but also in the U.S. and Europe, because companies have been moving their manufacturing bases overseas (to save costs),” Saito said.

During his fierce election battle with Ichiro Ozawa, Kan made it clear that the thrust of his economic policy is on job creation.

Last week, Kan announced emergency measures to help the economy cope with the yen’s sharp rise, including the use of ¥915 billion in reserve funds. The measures included the continuation of subsidies for consumers who buy environment-friendly products and financial support for companies active in creating job opportunities.

Saito said the effects of those measures will not be sustainable and that it is more effective to create new markets that can take advantage of Japan’s high manufacturing skills to produce competitive products.

In a separate 10-year economic policy vision, Kan stated that his administration would try to generate ¥123 trillion in demand that will translate into 5 million jobs. He said that the government will put a special focus on promoting environment-related businesses, health care services and tourism from other parts of Asia.

Experts said the vision is basically good but questioned whether it can really be implemented in the face of a divided Diet with an opposition-controlled Upper House.

When it came to the government’s efforts to blunt the yen’s strength against the weakening dollar, however, the experts split on how successful those efforts will be.

Tsukasa said the move came too late but earned the government some time to act.

“It was good that the government eventually did it,” he said, noting that Kan now has some breathing room for his next move.

Japan entered the foreign-exchange market in force for the first time in 6 1/2 years Wednesday, dumping about ¥1.7 trillion into the market. The yen promptly dropped from its 15-year high against the dollar, tumbling the most in four months.

Saito, however, criticized the move and said that Japanese exporters can still survive even if the yen is at 85 to the dollar. He said the price of U.S. commodities has climbed 45 percent compared with 15 years ago, which means that Japanese companies have leeway to raise prices.

“I think it is kind of abject that the government and related people telling foreign media that Japan’s economy cannot keep up if the yen stays at around 85. They are underestimating the Japanese economy,” Saito said.

Extra budget on way

Kyodo News

Prime Minister Naoto Kan will order an extra budget drawn up for fiscal 2010 to finance a secondary stimulus package worth several trillion yen, sources said Friday.

The draft supplementary budget for the year through March will be deliberated at an extraordinary session of the Diet that could convene later this month.

Kan wants to get the draft approved by the Diet within the year but could face hurdles because the Upper House is now controlled by the opposition parties.

Last week, Kan announced a government outlay of ¥915 billion to bolster the export-driven economy.