The government’s 2013 white paper on the economy and finance, issued by the Cabinet Office on Tuesday, said that the Japanese economy, which has suffered nearly two decades of deflation, “has shown signs of turning around” as it has picked up since the beginning of this year.
The report attributed the improvement in economic conditions to the economic policy of the Abe administration, which has been characterized by large spending on public works projects and the Bank of Japan’s massive monetary easing.
The white paper is tinged with praise for the economic policy of Prime Minister Shinzo Abe. Its analysis should be read carefully. More attention should be paid to the negative aspects of the current administration’s economic policy.
The white paper said that bold fiscal spending and massive monetary easing under the Abe administration have led to high stock prices and lowering the value of the yen and that expectations for desirable effects from these measures have helped improve consumer sentiment. It also pointed out that corporate earnings have improved and that some companies have increased workers’ wages in the form of bonuses.
By paying attention to the fact that the average unit price of consumer purchases is rising, the white paper said that “consumer preference for lower-priced products has been waning.” But it is doubtful whether people as a whole have really started loosening their purse strings. As the white paper said, due to rises of import costs attributable to a cheap yen caused by the BOJ’s massive monetary easing, there are moves to raise the shipping prices of some food items and durable consumer goods.
The report also expressed the view that the underpinning for solid consumer spending is the spending by households of aged people who benefited from high stock prices.
The white paper said that there is emerging a bud of a virtuous cycle of an increase in spending leading to an increase in production and the increase in production leading to an increase in income. But this observation may be too optimistic because there is no guarantee that improved corporate earnings will automatically translate into increased regular wages for workers.
In fact the white paper says that until the first half of the 1990s, there was a tendency for increases in corporate profits to lead to wage raises but that, since then, increases in corporate profits during economic booms have not translated into higher wages.
As the report says, it is important that the fruit of improvement of businesses’ earning power be properly distributed among workers, thus leading to raises in regular wages.
The white paper is weak in proposing concrete corrective measures for the side effects of a cheap yen and for the delays in raising workers’ regular wages. In this sense, the white paper is not convincing as a prescription for a strong economic recovery.