Although a package of reforms finalized by a key government panel on Friday may point Japan’s economic and fiscal systems in the right direction in the long term, pundits are skeptical whether it can deliver the boost of confidence necessary now.
The second round of “big boned” reform policies compiled by the Council on Economic and Fiscal Policy contains measures including the creation of special economic zones.
Once implemented, the policies should have a positive impact on the economy in the mid- to long-term, said Nobuhiro Okuyama, research manager at Mitsubishi Research Institute.
At issue, however, is that the package fails to present a clear short-term objective, he said.
“It is unclear what changes the reforms will induce in the economy in the here and now,” Okuyama said. “Therefore, individuals and companies cannot take positive action, such as investment and spending, which are definitely needed to move (the economy).”
The reform package failed to present truly “big boned” elements, such as significant reductions in fiscal spending or the infusion of large sums of money into the revitalization of urban areas, Okuyama said.
Tetsuro Sugiura, chief economist at Fuji Research Institute, noted that the council’s latest reform agenda is well-balanced, covering both banks’ bad-loan problem and the resuscitation of the industrial sector.
This contrasts with the reform agenda of last year, which focused on bad loans alone, he said.
However, Sugiura was doubtful of the reform policy’s ability to really help the economy, noting that the perception that the Japanese economy has bottomed out is based on the nation’s dependence on exports to the United States, which may still falter.
“If the U.S. (economy) should stumble, Japan’s recovery will stall again,” the economist said. “I wonder if this reform policy can be effective in such a scenario.”
Added to these fears are lingering concerns over whether Prime Minister Junichiro Koizumi can actually implement the reforms when some of his efforts appear to be stalling in the face of old guard resistance from within his Liberal Democratic Party, Sugiura added.
Susumu Takahashi, chief economist at the Japan Research Institute, agreed, pointing out that the “big-boned” reform policy Koizumi has long touted has weakened, and is now leaning toward stressing economic revitalization rather than true reforms including fiscal reconsolidation, which would be painful in the immediate term.
For instance, Friday’s reform package could have reflected the administration’s resolve to revitalize the economy by clearly saying the government should avoid a tax increase and implement tax cuts during a short and specific period, despite the unavoidable need to increase taxes over the medium term in light of the nation’s dire fiscal condition, Takahashi said.
He added that although the reform agenda designates four priority areas, including science and technology, in compiling the fiscal 2003 budget, it does not say how those key areas will be treated in comparison to conventional budget allocations.
On a more positive note, Okuyama of Mitsubishi Research noted that Koizumi’s reform efforts are making progress in terms of a shift from traditional decision-making to a more top-down style centered on the Cabinet.
Of concern, however, is whether the prime minister can continue his reform efforts when the public has begun losing its expectations for reform, a clear change from last year when enthusiasm for Koizumi’s agenda was strong, he said.