Japan Press Weekly

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2008 September 3 - 9 [ECONOMY]

Economy that continues to count on U.S. market has no future

Akahata editorial (excerpt)

The Nikkei Stock Average of 225 selected issues on September 5 fell more than 300 points on the Tokyo Stock Exchange, the third lowest level of the year, in the aftermath of a massive decline in the New York stocks. Investors are becoming wary due to the deepening financial and economic crises that originated from the United States as well as uncertainties about the Japanese economy.

The sub-prime mortgage meltdown triggered a financial crisis in the United States, in which U.S. banks incurred enormous losses. In addition to these banks’ reluctance to lend money, the influx of speculative money into oil and grain markets have pushed up prices, dealing a heavy blow to the U.S. real economy.

Japan’s State Minister in Charge of Economic and Fiscal Policy Yosano Kaoru said, “If the U.S. economy recovers, Japan’s economy will be back on track.” This remark shows that the Japanese government continues to rely heavily on the United States. However, there is no room for optimism.

The “structural reform” policy promoted by the ruling Liberal Democratic and Komei parties have led to a contraction in domestic demand while invigorating large exporters. Japan’s exports rapidly increased to account for 16 percent of GDP in FY 2007, up from 10.2 percent in FY 2001. However, it can no longer rely on the U.S. market.

Shift policy emphasis from large companies to household economy

The “structural reform” policy has helped large corporations at the expense of the household economy. For example, removal of restrictions on the use of temporary workers has led to a dramatic increase in the “working poor.” The LDP-Komei coalition government has given large corporations generous tax breaks while forcing working people to pay more in taxes and cutting social services.

In Japan, household spending is the main source of demand. It accounts for about 60 percent of the country’s economy.

If we are to establish a stable Japanese economy that will not be adversely affected by the ups and downs of the U.S. economy and reinvigorate Japanese small- and medium-sized businesses and agriculture, we must find ways to encourage people to spend money.

Along with effective control of excessive speculations, a drastic shift in economic policy away from counting on foreign demand to focus on helping the household economy is important.