I wrote this report for the 43rd Session of the US-Japan LEP and the 11th Session of the US-Japan-South KoreaTLEP which held in May 4 to May 6. Please read this report.
TAKEMOTO REPORT
Naokazu Takemoto Member of the House of Representatives, LDP
On the occasion of this important meeting, first of all, I would like to stress in particular the increasingly important role of the three countries, the US, Japan and South Korea, in dealing with global challenges such as the economic crisis after the Lehman shock and the expanding political instability all over the world.
In my report today, I will identify the issues and state my views on them from three domains: namely, i) recent developments in the Japanese economy ii) the latest trends in the US and world economies and the leading countries' "exit policies" from emergency counter-measures to deal with the financial crisis, and iii) the US-Japan alliance, which has been exposed to considerable turbulence lately.
1. Analysis on the latest developments in the Japanese economy
Japan is currently facing rising share prices ever since the Lehman shock; however, land prices continue to decline. The economy has been supported by the impact of the supplementary budget formulated by the LDP government but private investment is not yet increasing, which means the economy has not yet reached a sustainable recovery.
In addition, we have another big problem - the growing debt of public finance. Japan has more savings than any other country, but it has also issued an enormous amount of national bonds, and thus the ratio of the cumulative debt to GDP has finally reached 197.2%. This figure is significantly higher than in any other advanced country.
Fortunately, the long-term interest rate in Japan remains very low, but it could rise at any time. For example, as the recent rumour suggests, lowered ranks of the national bonds could trigger a rise in the long-term interest rate. We should be watchful of the movement of the long-term interest rate, since it could have a grave impact upon the private sector's fund procurement.
I am now thinking about measures to prevent the long-term interest rate from rising rapidly. Firstly, as I have been saying all along, we should discuss legal measures to restrict the amount of national bonds issued by setting an annual cap on it. Secondly, we should pursue a surplus of the primary balance of public finance by promoting sound and rational fiscal management in terms of global standards.
2. Analysis of the US and world economies and the leading economies' exit strategy from emergency countermeasures to deal with the financial crisis
Since Japan experienced the so-called "lost decade" after the burst of the economic bubble, it is very important for Japan to inform the rest of the world of the lessons it learned.
This would be valuable information in thinking about "the exit policy" from the fiscal and financial situation in the post-crisis period.
After the burst of the economic bubble, Japan injected about $120 billion as bail-out money into the banks and thus introduced a framework of reducing non-performing loans and recapitalization of the banking sector. Thus, further destabilization of the financial system was avoided, though the recovery in earnest of the banking sector in terms of their profits and lending capacity was achieved only after 2003.
In this crisis, many nations' governments injected public money into the banking sector. However, the banking sector in any country is in a hurry to return the public money. Of course, it is important to return the borrowed public money as soon as possible, since this comes from national taxes. It is also true that since last summer the banks have been earning much profit, offsetting the liability of their lending section, thanks to the increasing profits of the market section. However, looking at their balance sheets, it is clear that they are building up the funds for dealing with non-performing loans whereby they are returning public money. This means that they most likely still keep a great amount of non-performing loans. I believe that they should be more actively engaged in reducing non-performing loans instead of returning the borrowed public money promptly. Otherwise, the banking sector will be seriously damaged in the future. The contents of the balance sheet should be more important than its appearance.
The seriousness of the difficulties faced by the US banks are reflected by the ceaseless bankruptcies of their local banks. According to an FDIC (Federal Deposit Insurance Corporation) report, in FY2009, there were 148 bankruptcies and most likely in FY2010 the same number of bankruptcies will also occur. Many local banks could go bankrupt one after another from now on without any rapid recovery of the real estate price, since they still keep a great amount of non-performing loans and are not so competitive in their market section.
The US economic recession and the increasing bankruptcies of the financial institutes could affect the rest of the world economy as well, under globalization.
Under such circumstances, I believe that each country should introduce a system to purchase non-performing loans from the financial institutes rather than the ones already bankrupt in order to reduce non-performing loans and stabilize the economy.
I also believe that we should ask all the countries to introduce the so-called "Volker Rule" on the basis of the perception that all financial institutes should limit their role to support and sustain household and private corporations' economic activities rather than being engaged in speculation. Thus, we can prevent an expansion of unlimited leverage and volatile market.
Today, we have started to discuss the "exit policy" from emergency countermeasures to deal with the financial crisis. In such a discussion, I believe that it is necessary to ingeniously mix fiscal policy and financial policy.
For example, on the question of a public interest rate hike, after the financial crisis, all countries lowered it to from 0 to 1%, meaning that no single country would be able to raise it. Some countries with rich natural resources seem to be considering raising the public interest rate. However, it would be difficult for the advanced nations to raise it right now, because the US already decided to keep its public interest rate as it is at FOMC (Federal Open Market Committee) this March, and there has not yet been any rise in the real estate price. Considering the coming House election this autumn, it would be very difficult for the US government to raise it.
Looking at the other economies, the EU would find it very difficult as well due to the problem of Greece, and so would Japan as I mentioned above.
I think that every country should raise the public interest rate simultaneously and by the same degree, if they have to. Otherwise, it could have a grave negative impact upon foreign exchanges. All the nations' Treasury Ministers must cooperate with each other to achieve this goal.
Fiscal policy has to pursue balanced public finance. The increasing fiscal deficit could depress a nation's economy. How to reduce the fiscal deficit that has temporarily expanded after the financial crisis is critical.
The US government holds a debt amounting to 11.6% of GDP for the FY2010 budget and this is higher than the Japanese figure, which is 8% of GDP.
In the light of the continued serious current situation in the economy and employment of each country, I believe it would be premature to seek the exit policy from emergency measures to deal with the financial crisis. However, this is the right moment to start thinking about a step-by-step exiting strategy to stop the emergency measures, while we still need the measures to support the economy and employment.
We must take note that it will take a longer time to restore the world economy's sustainable growth, rather than pursuing the desire to restore the economy rapidly.
3.US-Japan alliance exposed to turbulence
After its change in party in power, Japan faces an unprecedented turning-point in foreign policy. The new administration's excessively Asia-oriented foreign policy, the question of the Futenma US military base, the trade dispute of the US beef imports of Japan, etc have very seriously damaged the US-Japan alliance.
The security environment surrounding Japan has changed greatly since the end of the Cold War, with factors such as the emergence of China, the increasing movement for the independence of Taiwan, the revival of Russia, and the tough, aggressive foreign policy of North Korea, emerging as threats to the security of Japan.
I needless to say, the foundation of Japan's military security policy is the US-Japan Security Treaty, while Japan's Self-Defense Forces exist only for self-defense.
Japan is prepared to counterattack the North Korean missiles by equipping MD (missile-defense system). However, it is not 100% certain that such a counterattack would be successful, and the entire space of Japan is not necessarily covered by MD. Some say that we should have sufficient military capacity to attack the North Korean missile bases, but in reality, we do not have such a capacity and we would need Constitutional amendments to enable us to have it. Only the US Army has the capacity to attack North Korea.
As a country whose Constitution does not allow the possession of arms or attacks, Japan has been successful in maintaining peace only with the cooperation of the US.
If Japan had to defend herself on her own, we would need an increase of many thousands in the Self Defense Forces and also to possess strategic arms such as nuclear weapons. To avoid such a potential increase in the cost of defense, we must be prudent in handling the US-Japan military alliance and the US-Japan Security Treaty.
We always have to think about the effectiveness of the US-Japan Security Treaty. In order to maximize its effectiveness, the US and Japan have been engaged in organizing joint military practice, assuming that the US takes responsibility for the attack and Japan takes responsibility for the defense.
Japan needs to respond to the US requests as positively as possible on issues such as the request to send Japan's Self Defense Forces to Afghanistan or Iraq, in order to consolidate mutually reliable relations. This is a key of Japan's foreign policy. Unfortunately, Asia is a very unstable area in the sense that the region consists of a wide variety of races and religions. Also, there is a broad range of countries that definitely or probably possess nuclear arms in Asia such as the US, Russia, China, India, Pakistan and North Korea.
DPJ politicians responsible for foreign policy in the new administration must have thoroughly forgotten this, since they have been living in peaceful Japan for a long time.
From the Americans' standpoint as well, Japan is a strategically important country - especially if China continues to increase military expenditure by 10% annually and there is the possibility that North Korea has nuclear arms. Japan is a strategically important military base in the Far East for the US, considering the importance of keeping military pressure on China and North Korea in terms of US security. In addition, our bilateral economic relations including trade are inseparable from each other.
In the light of all I have mentioned here, maintaining the US-Japan alliance will bring us win-win relations. For the national interest of Japan, it is essential for us to make our best efforts to keep the US-Japan alliance.
(end)
TAKEMOTO REPORT
Naokazu Takemoto Member of the House of Representatives, LDP
On the occasion of this important meeting, first of all, I would like to stress in particular the increasingly important role of the three countries, the US, Japan and South Korea, in dealing with global challenges such as the economic crisis after the Lehman shock and the expanding political instability all over the world.
In my report today, I will identify the issues and state my views on them from three domains: namely, i) recent developments in the Japanese economy ii) the latest trends in the US and world economies and the leading countries' "exit policies" from emergency counter-measures to deal with the financial crisis, and iii) the US-Japan alliance, which has been exposed to considerable turbulence lately.
1. Analysis on the latest developments in the Japanese economy
Japan is currently facing rising share prices ever since the Lehman shock; however, land prices continue to decline. The economy has been supported by the impact of the supplementary budget formulated by the LDP government but private investment is not yet increasing, which means the economy has not yet reached a sustainable recovery.
In addition, we have another big problem - the growing debt of public finance. Japan has more savings than any other country, but it has also issued an enormous amount of national bonds, and thus the ratio of the cumulative debt to GDP has finally reached 197.2%. This figure is significantly higher than in any other advanced country.
Fortunately, the long-term interest rate in Japan remains very low, but it could rise at any time. For example, as the recent rumour suggests, lowered ranks of the national bonds could trigger a rise in the long-term interest rate. We should be watchful of the movement of the long-term interest rate, since it could have a grave impact upon the private sector's fund procurement.
I am now thinking about measures to prevent the long-term interest rate from rising rapidly. Firstly, as I have been saying all along, we should discuss legal measures to restrict the amount of national bonds issued by setting an annual cap on it. Secondly, we should pursue a surplus of the primary balance of public finance by promoting sound and rational fiscal management in terms of global standards.
2. Analysis of the US and world economies and the leading economies' exit strategy from emergency countermeasures to deal with the financial crisis
Since Japan experienced the so-called "lost decade" after the burst of the economic bubble, it is very important for Japan to inform the rest of the world of the lessons it learned.
This would be valuable information in thinking about "the exit policy" from the fiscal and financial situation in the post-crisis period.
After the burst of the economic bubble, Japan injected about $120 billion as bail-out money into the banks and thus introduced a framework of reducing non-performing loans and recapitalization of the banking sector. Thus, further destabilization of the financial system was avoided, though the recovery in earnest of the banking sector in terms of their profits and lending capacity was achieved only after 2003.
In this crisis, many nations' governments injected public money into the banking sector. However, the banking sector in any country is in a hurry to return the public money. Of course, it is important to return the borrowed public money as soon as possible, since this comes from national taxes. It is also true that since last summer the banks have been earning much profit, offsetting the liability of their lending section, thanks to the increasing profits of the market section. However, looking at their balance sheets, it is clear that they are building up the funds for dealing with non-performing loans whereby they are returning public money. This means that they most likely still keep a great amount of non-performing loans. I believe that they should be more actively engaged in reducing non-performing loans instead of returning the borrowed public money promptly. Otherwise, the banking sector will be seriously damaged in the future. The contents of the balance sheet should be more important than its appearance.
The seriousness of the difficulties faced by the US banks are reflected by the ceaseless bankruptcies of their local banks. According to an FDIC (Federal Deposit Insurance Corporation) report, in FY2009, there were 148 bankruptcies and most likely in FY2010 the same number of bankruptcies will also occur. Many local banks could go bankrupt one after another from now on without any rapid recovery of the real estate price, since they still keep a great amount of non-performing loans and are not so competitive in their market section.
The US economic recession and the increasing bankruptcies of the financial institutes could affect the rest of the world economy as well, under globalization.
Under such circumstances, I believe that each country should introduce a system to purchase non-performing loans from the financial institutes rather than the ones already bankrupt in order to reduce non-performing loans and stabilize the economy.
I also believe that we should ask all the countries to introduce the so-called "Volker Rule" on the basis of the perception that all financial institutes should limit their role to support and sustain household and private corporations' economic activities rather than being engaged in speculation. Thus, we can prevent an expansion of unlimited leverage and volatile market.
Today, we have started to discuss the "exit policy" from emergency countermeasures to deal with the financial crisis. In such a discussion, I believe that it is necessary to ingeniously mix fiscal policy and financial policy.
For example, on the question of a public interest rate hike, after the financial crisis, all countries lowered it to from 0 to 1%, meaning that no single country would be able to raise it. Some countries with rich natural resources seem to be considering raising the public interest rate. However, it would be difficult for the advanced nations to raise it right now, because the US already decided to keep its public interest rate as it is at FOMC (Federal Open Market Committee) this March, and there has not yet been any rise in the real estate price. Considering the coming House election this autumn, it would be very difficult for the US government to raise it.
Looking at the other economies, the EU would find it very difficult as well due to the problem of Greece, and so would Japan as I mentioned above.
I think that every country should raise the public interest rate simultaneously and by the same degree, if they have to. Otherwise, it could have a grave negative impact upon foreign exchanges. All the nations' Treasury Ministers must cooperate with each other to achieve this goal.
Fiscal policy has to pursue balanced public finance. The increasing fiscal deficit could depress a nation's economy. How to reduce the fiscal deficit that has temporarily expanded after the financial crisis is critical.
The US government holds a debt amounting to 11.6% of GDP for the FY2010 budget and this is higher than the Japanese figure, which is 8% of GDP.
In the light of the continued serious current situation in the economy and employment of each country, I believe it would be premature to seek the exit policy from emergency measures to deal with the financial crisis. However, this is the right moment to start thinking about a step-by-step exiting strategy to stop the emergency measures, while we still need the measures to support the economy and employment.
We must take note that it will take a longer time to restore the world economy's sustainable growth, rather than pursuing the desire to restore the economy rapidly.
3.US-Japan alliance exposed to turbulence
After its change in party in power, Japan faces an unprecedented turning-point in foreign policy. The new administration's excessively Asia-oriented foreign policy, the question of the Futenma US military base, the trade dispute of the US beef imports of Japan, etc have very seriously damaged the US-Japan alliance.
The security environment surrounding Japan has changed greatly since the end of the Cold War, with factors such as the emergence of China, the increasing movement for the independence of Taiwan, the revival of Russia, and the tough, aggressive foreign policy of North Korea, emerging as threats to the security of Japan.
I needless to say, the foundation of Japan's military security policy is the US-Japan Security Treaty, while Japan's Self-Defense Forces exist only for self-defense.
Japan is prepared to counterattack the North Korean missiles by equipping MD (missile-defense system). However, it is not 100% certain that such a counterattack would be successful, and the entire space of Japan is not necessarily covered by MD. Some say that we should have sufficient military capacity to attack the North Korean missile bases, but in reality, we do not have such a capacity and we would need Constitutional amendments to enable us to have it. Only the US Army has the capacity to attack North Korea.
As a country whose Constitution does not allow the possession of arms or attacks, Japan has been successful in maintaining peace only with the cooperation of the US.
If Japan had to defend herself on her own, we would need an increase of many thousands in the Self Defense Forces and also to possess strategic arms such as nuclear weapons. To avoid such a potential increase in the cost of defense, we must be prudent in handling the US-Japan military alliance and the US-Japan Security Treaty.
We always have to think about the effectiveness of the US-Japan Security Treaty. In order to maximize its effectiveness, the US and Japan have been engaged in organizing joint military practice, assuming that the US takes responsibility for the attack and Japan takes responsibility for the defense.
Japan needs to respond to the US requests as positively as possible on issues such as the request to send Japan's Self Defense Forces to Afghanistan or Iraq, in order to consolidate mutually reliable relations. This is a key of Japan's foreign policy. Unfortunately, Asia is a very unstable area in the sense that the region consists of a wide variety of races and religions. Also, there is a broad range of countries that definitely or probably possess nuclear arms in Asia such as the US, Russia, China, India, Pakistan and North Korea.
DPJ politicians responsible for foreign policy in the new administration must have thoroughly forgotten this, since they have been living in peaceful Japan for a long time.
From the Americans' standpoint as well, Japan is a strategically important country - especially if China continues to increase military expenditure by 10% annually and there is the possibility that North Korea has nuclear arms. Japan is a strategically important military base in the Far East for the US, considering the importance of keeping military pressure on China and North Korea in terms of US security. In addition, our bilateral economic relations including trade are inseparable from each other.
In the light of all I have mentioned here, maintaining the US-Japan alliance will bring us win-win relations. For the national interest of Japan, it is essential for us to make our best efforts to keep the US-Japan alliance.
(end)