Japan Press Weekly

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2010 September 8 - 14 TOP3 [ECONOMY]

What Japan should do against the strong yen

Q: What is the cause of the sharp appreciation of the yen?

Flow of speculative money & dependence on foreign demand

A: Economic stagnation and recession in the U.S. and Europe are behind the strong yen. The U.S. cannot get away from its economic crisis while the euro is unstable due to the Greek financial crisis.

The yen has become stronger not because Japan’s economy is growing but because it is relatively stable compared with the dollar and the euro. Flow of speculative money into Japan accelerates the appreciation of the yen.

The root cause of the current situation is the structure of the Japanese economy, which has carried out extensive cost-cutting measures and has continued to depend on foreign demand. As the result of promoting the strengthening of competitiveness in exports at the expense of workers and SMEs, the value of the yen increased more than the actual potential of Japan’s economy.

Q: Is this because of a distortion of Japanese economy?

Major firms’ enormous profits do not return to domestic economy

A: Yes. Last year, workers’ incomes decreased even though large corporations increased their internal reserves from 233 trillion to 244 trillion yen. The increased amount is equivalent to the wages for 2.2 million workers with an annual salary of five million yen.

Large firms’ cash reserves stand at 52 trillion yen, the highest ever since the days of the bubble economy. They have made profits even under conditions of slow sales because of their thorough cost reduction measures used against employees and subcontractors.

Japan’s economic growth has dwindled with the increase in poverty and decrease in consumer spending.

Q: What kind of urgent measures need to be taken?

Employment and SMEs must come first

A: The JCP believes that the government immediately needs to take the following measures:

First, it must prevent major corporations from forcing workers and SMEs to cover the negative effects caused by the strong yen. It needs to strengthen regulations in order to force them to fulfill their social responsibilities.

According to research by the Osaka Chamber of Commerce, 73.3 percent of members engaged in export-related businesses are already experiencing negative influences of the strong yen.

If large corporations are allowed to use the strong yen as an excuse to dismiss increasing numbers of workers, cut their wages, or further reduce the unit price of parts for subcontractors, it will further increase the weakness of the Japanese economy.

Regarding employment, the government should block corporate dismissals of fixed-term contract workers, temporary workers, and other non-regular workers as well as restrain the unjust restructuring targeting regular workers.

In order to support SMEs, the government must strengthen its monitoring of and control over major corporations, many of which have stopped orders to their subcontractors and reduced unit prices. It needs to provide funding assistance for export-related small companies. As the JCP has continued to call for, direct financial supports are also important in order to help smaller companies pay the rent for factories and other fixed charges.

Q: How can financial speculation aiming to make profits from the strong yen be restrained?

Urgent task is to regulate financial speculation

A: The government should call on the international community to establish regulations on such transactions, and should create a system for passing along to the general public the benefits of the strong yen.

At present, the amount of dollars traded in the global foreign exchange market amounts to four trillion U.S. dollars a day (survey of the Bank for International Settlements August 1, 2010). This amount is far larger than Germany’s gross domestic products (GDP) of 3.3 trillion dollars.

It is necessary for the Japanese government to call on the international community to initiate international discussions on measures to regulate speculation in foreign exchange and stabilize the international currency market with an introduction of a tax on speculative international transactions.

Some Japanese companies, including electric power companies and oil companies, can gain profits from the strong yen because the cost for importing raw materials is lower than before. It is important for the government to create a system for getting these companies to pass on their windfall profits to the general public through various ways such as a reduction in fees for their services.

Q: What is the solution to the structural limitations of Japanese economic policy?

Boost domestic demand by changing Japanese economic policy: JCP five-point proposal

A: Basically, it is necessary to change the policy to one led by domestic demand.

The JCP in March published a five-point proposal for reforming the Japanese economy. The JCP proposes that the government: (1), Establish work rules enabling workers to work with human dignity by drastically revising the Worker Dispatch Law to ban the disposable use of labor and increase the minimum wage; (2), Establish rules to guarantee fair trade between large corporations and small- and medium-sized enterprises (SMEs) and an effective policy to develop SMEs based on the SME Charter; (3), Raise the nation’s food self-sufficiency rate and revitalize agriculture, forestry, and fisheries; (4), Revise government social welfare policy from one of cutting the budget for social welfare services to one of improving these services; (5), Reconstruct national finance. In order to do so, it is necessary to cut five trillion yen from the military budget and put a stop to the excessively favorable taxation system that benefits large corporations and the wealthy.
- Akahata Sunday edition, September 12, 2010