NEW YORK – Japan must become an engine for global growth by promoting deregulation and market-opening steps, U.S. Treasury Secretary Paul O’Neill said Thursday.
In a speech at the Japan Society in New York, O’Neill also urged Tokyo to make halting deflation and cleaning up the financial sector policy priorities to overcome its economic problems.
Without moving aggressively to fix its economic problems, he warned, Japan will become a “boxcar” — not a locomotive — in the world economy down the road.
“If the trends of the past decade continue for Japan and the U.S., and if China grows at the 7 percent annual rate most analysts project, in 25 years the Japanese economy will be less than one-fourth the size of the United States, and only four-fifths the size of China,” O’Neill said.
Making clear his view that deregulating Japan’s economy and opening its markets was the policy priority for Tokyo, O’Neill urged that reforms proposed by Prime Minister Junichiro Koizumi be adopted quickly.
“I am convinced that Prime Minister Koizumi’s agenda is the right path,” O’Neill said. “Now they have to make it happen.”
Japan must try to achieve its 3 percent annual growth potential so that it can become an engine for the world economy, O’Neill told the audience.
“If Japan grows by 3 percent annually over the next 25 years, in 2027, Japan’s economy will be about 40 percent of the size of the United States and 33 percent larger than China’s. This should be the target,” O’Neill said.
If structural reforms were to be pushed in one go, 4 percent to 5 percent annual growth would also be possible, he added.
Asked about the sudden rise of the yen against the dollar following his Senate testimony Wednesday, O’Neill declined comment beyond saying that each country’s economic fundamentals are key to the currency market.
The state of the Japanese economy, which has been in a slump for more than a decade, has been a focus of attention among policymakers in Washington and a constant subject in O’Neill’s speeches.
On Wednesday, he told the Senate Banking, Housing and Urban Affairs Committee, “Restoring strong Japanese growth is one of the keys to unlocking strong global growth.”
He also told Congress that he believes Japan’s economic performance has been “well below its potential,” a theme he repeated in his New York address.
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