The declaration by Group of Seven leaders who gathered in the Ise-Shima area of Mie Prefecture seemed to contain an all-inclusive recipe to deal with the challenges facing the world economy. The statement adopted Friday at the end of the two-day annual summit says the leaders commit to “using all policy tools — monetary, fiscal and structural — individually and collectively” while “continuing our efforts to put debt on a sustainable path.” The leaders pledged to strengthen their policy responses “in a cooperative manner and to employing a more forceful and balanced policy mix” to “swiftly achieve a strong sustainable and balanced growth pattern” while “taking into account country-specific circumstances.” In short, each of the G-7 economies will make its own policy choice as it sees fit.

Prime Minister Shinzo Abe, who hosted the summit, warned fellow G-7 leaders the previous day that the global economy is “at a risk of falling into a crisis” on the scale of the 2008 Lehman shock unless appropriate policy responses are taken in a timely manner, noting that weak data such as the steep fall in world commodity prices and sluggish investment growth in emerging economies resemble the situation before and after the crisis triggered by the collapse of Lehman Brothers. But his assessment did not appear be shared by all.

Abe’s statement was widely taken as a cue that he was trying to use the G-7 summit discussion as the backdrop for a possible decision as early as next week to shelve the April 2017 consumption tax hike — ahead of the Upper House election scheduled in July. After he first postponed the tax hike in 2014, he kept saying that he would not delay the hike further unless there was a crisis on the level of the Lehman shock and the 2011 Great East Japan Earthquake. Whether or not his assessment of the risk of a global economic crisis was appropriate as the summit chair is another question.

In the weeks leading up to hosting the summit, Abe tried unsuccessfully to convince European G-7 leaders into endorsing a need for concerted efforts on fiscal stimulus to drive global growth, with German Chancellor Angela Merkel and Britain Prime Minister David Cameron reportedly emphasizing the importance of structural reforms and fiscal discipline. The divide within the G-7 countries on concerted fiscal spending was also evident when their finance ministers and central banks chiefs met last week in Sendai, Miyagi Prefecture. At the root of the gap appears to have been their differences in their assessments of the world’s economic climate — which the summit discussions also highlighted.

With or without the endorsement by fellow G-7 leaders, it is now widely reported that Abe will shortly make a decision to postpone the consumption tax hike once again. There are reports that he will also unveil a new stimulus package, again in view of voter support in the upcoming polls.

It’s true the growth of Japan’s economy remains fragile and uneven. It would be understandable if the Abe administration determines that consumer spending is too weak to withstand another tax hike next year, which could derail its four-year-old pledge to bust deflation. But he should also consider whether merely delaying the tax hike and introducing yet another stimulus will boost the nation’s growth — which should be Japan’s contribution to the world economy as G-7 chair.

The G-7 declaration touts the importance of “mutually-reinforcing fiscal, monetary and structural policies, the three-pronged approach, to buttress our efforts to achieve strong, sustainable and balanced growth.” The much-touted “three arrows” of Abenomics — aggressive monetary easing, flexible fiscal spending and structural reforms to generate growth — have yet to produce what the administration has called a virtuous cycle of the economy, with the focus lopsidedly on the massive monetary stimulus by the Bank of Japan and the promised structural reforms achieving little in terms of growth. The administration’s economic policies should be reassessed in light of the summit statement.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.