The European sovereign debt crisis and Japan’s economic and growth policies of the new Abe government (“Abenomics”)
By Takemoto Naokazu
Member of the House of Representatives
February 13, 2013
The European sovereign debt crisis
Firstly, I would like to briefly touch on the current European economies.
The global economy is showing growing signs of recovery on the whole, while downside risks still remain. As for Europe, tensions in financial markets have been eased thanks to the policy efforts, including each country’s reform efforts and the introduction of rescue mechanisms such as OMT(Outright Monetary Transactions) and ESM(European Stability Mechanism). We welcome such positive developments. It is important for Europe itself to take responsibility for timely implementing those measures.
On our side, Japan has taken initiative to announce its financial contributions to the IMF resources, 100 billion dollar in 2008 and 60 billion dollar in 2012, both of which were the largest among members, to support the stability of global financial markets. Japan has also continuously bought EFSF (European Financial Stability Facility) bonds and announced its intention of purchasing ESM bonds in order to support European efforts to stabilize their financial markets. I will continue working to ensure that Japan can continue to help Europe.
Concerning the bilateral economic cooperation, I would also like to note the importance of the Japan-EU EPA. The Japan-EU EPA will promote our economic growth through expanding trade and investment between both economies. We expect the early launch of the negotiation.
Japan’s economic and growth policies of the new Abe government (“Abenomics”)
Then, I would like to explain Japan’s economic and growth policies of the new Abe government, so called “Abenomics”.
The Abe Administration has attached its highest priority to exiting from prolonged deflation and revitalizing the economy. Its economic policies consist of (i) bold monetary easing, (ii)fiscal expansion and medium-term consolidation , and (iii) growth strategy to encourage private investment. By implementing these measures simultaneously, we will aim at overcoming the persistent deflation, reversing the long-lasting trend of a shrinking economy and realizing a sustained economic growth with more jobs and higher incomes.
(Bold Monetary Easing)
First, monetary policy. The Government of Japan and the Bank of Japan (BOJ) announced a joint statement on overcoming deflation and achieving sustainable economic growth on January 22. The BOJ clearly sets the price stability target at 2 percent in terms of the year-on-year rate of change in the consumer price index and it will pursue monetary easing and aim to achieve this target at the earliest possible time.
(Fiscal Expansion and Medium-term Consolidation)
Second, fiscal policy. The Government announced the Emergency Economic Measures for The Revitalization of the Japanese Economy on January 11. This policy package will implement public works for accelerating the post-quake reconstruction and strengthening the nation’s infrastructure to improve disaster prevention and mitigation. In addition, we will also adopt measures that should contribute to sustainable growth through promoting business investment and innovation and strengthening human capital development. We expect the emergency measures would boost real GDP by around 2%.
While we will conduct fiscal expansion and structural reforms, we will also implement the credible medium-term fiscal consolidation plan in order that the rapid increase of long-term interest rates would not harm sustainable growth of Japanese economy. We aim at reaching the fiscal consolidation targets of halving the ratio of primary balance deficits to GDP by FY2015 and achieving primary balance surplus by FY2020. This is what Japan has committed at the G20. We will take a step towards fiscal consolidation from the FY 2013’s budget to achieve long-term sustainable growth.
(Growth Strategy)
Finally, growth strategy. Structural and regulatory reforms are keys of growth strategy to strengthen the competitiveness of the Japanese economy. We plan to formulate a new growth strategy in the middle of this year, which include decisive policy actions, such as concentrating resources on innovative research and development (R&D), strengthening the foundation for innovation, carrying out bold regulatory and institutional reforms, and better utilizing the tax system.
Closing Remarks
The Japanese economy has been facing difficult challenges that the rest of the world has not yet experienced, such as the need to overcome deflation and coping with a falling birth rate and aging population. Japan intends to contribute on a worldwide level by tackling these challenges and “finding the cure.” We also believe that Japan’s strong economic recovery should contribute to the global economic growth.
Thank you.