At a news conference following the 2013 Group of Eight developed nations’ summit June 17-18 in Enniskillen, Northern Ireland, Prime Minister Shinzo Abe said that G-8 leaders expressed strong support for his economic policy by stating that the revival of the Japanese economy will give a great boost to the global economy.
In fact, British Prime Minister David Cameron, who served as chair of the summit, praised Mr. Abe’s attempt at Japan’s economic revival. Italian Prime Minister Enrico Letta said that he would like to emulate Mr. Abe’s economic policy as a good model for economic resuscitation.
But Mr. Abe should not indulge in self-congratulations. He must realize that he faces the extremely difficult task of putting the Japanese economy on a steady path of recovery while simultaneously reconstructing the nation’s finances and avoiding economic frictions with other countries.
The communique issued by G-8 leaders said, “Japan’s growth will be supported by its near-term fiscal stimulus, bold monetary policy and recently announced strategy for promoting private investment.” But Japan should not forget the following sentence in the communique: “However, it (Japan) will need to address the challenge of defining a credible medium-term fiscal plan.”
The Abe administration said in its basic policy of economic and fiscal management that it plans to halve the deficit in the primary balance — a gauge to show how much policy-related spending is covered by tax and other revenues independent of bond issuance — by 2015 and post a surplus by 2020. But it has not yet worked out a road map to achieve this goal. Japan’s outstanding debts have reached 2.2 times its gross domestic product.
These debts must be reduced. But a hasty and blind attempt to decrease the accumulated debts could instead lead to a contraction of the economy. The Abe administration needs to take a cautious and thoughtful approach to avoid a disastrous result.
Germany, which is competing with Japan in various economic fields, expressed its dissatisfaction with the rapid devaluation of the yen caused by Japan’s massive monetary easing, which is aimed at achieving a 2 percent inflation in two years. German Chancellor Angela Merkel said that countries with lower labor costs are complaining that even with their relatively cheap labor costs, they are facing disadvantages due to foreign-exchange rates.
During the summit, the fear was expressed that the fall in the value of the yen caused by Mr. Abe’s economic policy might trigger a competitive round of currency devaluation. Exports account for only about 15 percent of Japan’s gross domestic product. The Abe administration should seriously aim to expand Japan’s domestic market by stimulating capital investment and consumer spending. This way Japan can help to boost the world economy by increasing its imports.
Deliberately trying to drive the yen’s value down will invite criticism that Japan is pursuing a beggar-thy-neighbor policy and also cause difficulties for certain domestic industries due to the soaring costs of fuel and other essential imports.