The Abe administration will soon compile an around ¥12 trillion supplementary budget for fiscal 2012 and the fiscal 2013 initial budget. Prime Minister Shinzo Abe is pushing for a bold economic policy to pull the Japanese economy out of a long period of deflation, including unlimited monetary easing by the Bank of Japan and massive investment in public works projects. In an attempt to win in the Upper House election to be held in the coming summer, the Abe administration is likely to try every available means to stimulate the economy. But its economic policy must be closely watched because it may produce undesirable side-effects.
Mr. Abe hopes that the prime minister’s headquarters will take an initiative in carrying out the government’s economic policy. Trade and Industry Minister Toshimitsu Motegi, Finance Minister Taro Aso and Economic Revitalization Minister Akira Amari will play leading roles in the newly created Japanese economy revitalization headquarters.
Mr. Abe will also revive the Council on Economic and Fiscal Policy. He should be careful to prevent the council from lopsidedly accepting opinions from business leaders to the exclusion of opinions of labor union leaders and consumers.
The Liberal Democratic Party has been calling for spending ¥200 trillion over the coming 10 years to strengthen Japan’s infrastructure in the name of making the nation resilient to natural disasters. But the government must carefully select new public works projects to avoid wasting public funds. As the Chuo Expressway tunnel accident demonstrates, the infrastructure built in the days of high economic growth is aging and may pose a danger. The government should place priority on inspecting and repairing roads, bridges, tunnels, embankments and other structures built in that era.
The LDP’s policy will require issuance of new bonds. In compiling the fiscal 2013 budget, the Abe administration plans to break with the Noda administration’s target of limiting the size of the general account budget to ¥71 trillion.
The government’s outstanding debts reach around ¥1,000 trillion, about twice the nation’s gross domestic product. Mr. Abe must take utmost care because an undisciplined increase in national debts could trigger distrust in markets, leading to massive selling by bondholders and undermining the nation’s financial standing. He also should realize that the LDP’s traditional habit of stimulating the economy through public works projects has resulted in the current accumulation of national debts.
Mr. Abe is calling on the BOJ to adopt an inflation target of 2 percent through unlimited monetary easing. Simply causing inflation in the name of ending deflation is wrong. The most important thing is to improve employment and wages. Price increases without income growth will devastate people’s lives.
The government should work out concrete measures designed to help nurture industries that will create jobs and earn money inside and outside Japan. It also should create a social welfare program that will be self-sustaining even in the face of the low birthrate, the graying of the population and slow economic growth.