Kan's plan to fix Japan doubted
On 18 June, the Japanese government unveiled its mid- to long-term “new growth strategy”. The goal is to haul Japan out of deflation, achieve a real growth rate of 2%, and reduce the 200% fiscal debt. It also intends to reduce the unemployment rate to 4% as soon as possible and create 5m jobs by 2020.
To achieve these targets, the government has called on the Bank of Japan to “make every effort” to end customer-price falls, which have hobbled Japan for the past 14 months, and thereby achieve stable inflation rates by fiscal April 2011.
The plan aims to overhaul the tax system. Reducing corporate tax to 25% is a central part of this, and should boost the competitiveness of domestic businesses and make Japan a more enticing place for foreign companies.
Seven areas for strategic growth and 21 priority projects were also highlighted. These include environment and energy, healthcare, tourism, achieving a free-trade zone in Asia, and revitalising regional areas.
With Japanese companies losing ground to other Asian companies, especially in electronics, the scheme will provide government-backing for new areas of growth, such as exporting infrastructure technologies. This covers areas such as nuclear reactors and high-speed railways, which are being marketed to emerging economies, especially in the Asia region.
The government also intends to expand the healthcare sector, and expects this to generate 2.84m jobs and boost revenue by Y700bn per year. Key areas such as drugs and medical equipment will be deregulated.
Keidanren, the Japan Business Federation, has praised the quantitative targets in the new growth strategy.
Yet while deflation is a problem, skeptical economists believe that the paper does little to address the root of it. Quoted in the Wall Street Journal, Kathy Matsui, chief Japan strategist at Goldman Sachs, said “Deflation is not the cause, but merely a symptom of Japan’s diseases, which is low productivity and a demographic crisis.” The government scheme does little to tackle the shrinking population.
Skeptics also doubt the government’s ability to invest in growth in light of its bloated debt. It already faces a large tax gap.
Others, such as the Nikkei, wonder how the government will convince the numerous interest groups that oppose deregulation, especially between the various ministries. The plan is also being criticised for its lack of milestones beyond 2013.