There are growing signs that Japan’s protracted economic slump may be finally coming to an end. Fiscal and monetary measures for recovery are already in place. The fiscal 1999 government budget, with its large public-works outlays and tax cuts, has cleared the Diet ahead of schedule. The Bank of Japan, its interest rates set at near-zero levels, is pumping money into the financial system. Debt-burdened banks have gained a new lease on life, or so it seems, thanks to massive infusions of public capital.
All this has given a boost to the stock market, even despite last week’s grim report that Japan’s jobless rate in February climbed to 4.6 percent, a record high level since 1953 when the government began compiling employment data. In its “tankan” survey announced this week, furthermore, the central bank has reported that Japanese businesses now are less gloomy about the economy.
This basically underscored the Economic Planning Agency’s monthly report for March: There are “palpable stirrings of change” and “the downward momentum is coming to a halt.” Public opinion polls and surveys of business executives also reveal positive signs that the nation’s worst postwar slump, triggered by the collapse of the asset-inflated economy at the start of this decade, is coming to an end.
Whether the economy is really headed for a sustainable recovery is uncertain at best. It seems more likely that a further downturn has been avoided by a set of ad hoc policy measures. The economy as a whole remains in the doldrums. As these policy tonics wear off, it may very well slip back into recession. With interest rates at rock bottom and with public finances in a shambles, there is little or no room left for further fiscal and monetary action.
To maintain the momentum toward recovery, it is essential that private demand regain enough strength to lead the recovery before public support tapers off. For this to happen, private corporations must get back on their feet as quickly as possible without relying on official generosity. The government, meanwhile, must take stronger measures to help boost employment and create jobs, and must push structural reform and deregulation. These programs must be well focused and implemented with great dispatch.
Following the passage of the budget, the government has taken a number of additional stimulus measures. As a result, public-works investment will be frontloaded in the first half of fiscal 1999, April through September, pushing the half-year target volume of orders to a record 15 trillion yen. The government will also raise the ceiling on special loan guarantees for small- and medium-size companies from the present 20 trillion yen. Mortgage interest rates charged by Housing Loan Corp. will be set at the lowest possible level.
All these steps, on top of those announced earlier, should be able to spur demand. There is criticism, to be sure, that public investment heavily tilted to traditional projects like roads, bridges and harbors will not help much to expand total demand. But a 10 percent year-on-year increase in such spending in just six months can have a considerable impact.
Minimizing increases in public home-loan interest rates is a step in the right direction that will help sustain the increase in housing construction. The expansion of special loan guarantees, coupled with increased lending from public finance corporations, will make things easier for cash-starved smaller businesses that face a continuing credit squeeze by private banks.
For all this, however, it still seems premature to conclude that the worst is definitely over. True, consumer spending shows signs of picking up, but the overall pattern remains one of stagnation. Business spending on new plant and equipment is depressed. And unless these two big engines of growth start humming again, it will be impossible to achieve a self-sustaining recovery on the back of domestic demand.
Rising unemployment also clouds economic prospects. The trend is likely to continue for some time, as major companies rev up their restructuring efforts. But corporate streamlining, including job cuts, is absolutely necessary for industrial renewal. If carried out from a long-term strategic perspective, and not in a last-ditch effort to ride out an immediate crisis, it will lead over time to genuine recovery.
Therefore, the “conference on industrial competitiveness” created late last month can play an important role. The semigovernmental panel, which reports directly to the prime minister, will discuss measures to eliminate overcapacity, create jobs, clear debts and develop new industries. The results of its debates must be put to the best practical use for corporations.
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