Political parties that are competing in the Dec. 16 Lower House election should present convincing proposals to prevent Japan from continuing down the deflationary path. But they must be careful to ensure that their efforts to end deflation will not lead to price rises that are not supported by enlivened economic activities and expanded employment opportunities accompanied by higher wages for workers.

Japan’s gross domestic product in real terms dropped 0.9 percent, or an annualized 3.5 percent, in the July-September period from the previous quarter. The April-June period saw no growth in the nation’s gross domestic product. The unstable employment situation is characterized by an increase in the percentage of irregular workers, coupled with an overall decrease in wage levels.

Japan is the only developed country that has seen wages decline over many years. The average monthly wage in 2011 was ¥316,792, down from the corresponding figure of ¥351,355 in 2001. And in the July-September period, irregular workers accounted for 35.5 percent of Japan’s workforce.

Consumer spending accounts for about 60 percent of the nation’s GDP. The downtrend in wage levels will cause people to tighten their purse strings, further shrinking domestic demand. In addition, an oversupply of products and imports of cheaper products from overseas are heating up price competition and strengthening expectations that prices will continue to drop. Lower prices will impact enterprises’ profitability, which in turn could lead to further wage cuts. This vicious circle must be stopped.

Liberal Democratic Party leader Shinzo Abe is calling on the Bank of Japan to set a 2 percent inflation target and to carry out bold monetary easing to pull the Japanese economy out of deflation. He also proposes that the central bank buy all government-issued construction bonds. The LDP says it will strive to achieve a nominal economic growth rate of 3 percent or more. But massive buying of government bonds by the BOJ could cause a rise in interest rates and break the nation’s financial discipline.

Under Japan’s current economic situation, massive monetary easing will not necessarily result in stimulating economic activities by enterprises. A cheap money policy will not suffice to induce enterprises to increase capital investment. Political parties should work out measures that will stimulate economic activities at local levels to increase job opportunities, which in turn will eventually boost overall economic growth. Such measures are conducive to increasing domestic demand — something that the Japanese economy badly needs.

The Democratic Party of Japan government has identified medical and nursing care services, environment-friendly industry and agriculture as new growth fields. Other parties should not spurn this approach merely because the DPJ endorses it. That said, they should develop their own strategies to help these sectors grow. In doing so, they should include measures to promote green energy sources. They should also come up with plans to improve Japan’s research and development capabilities with the aim of enhancing the competitive position of Japanese enterprises abroad.

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