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Japan needs some hard medicine

ONE of Japan’s foremost economic analysts, Dr Naoki Tanaka, was in Perth last week bringing mixed news on the prospects for the world’s second largest economy.

He said the trillions of yen that has gone into the infrastructure would not be enough to underwrite more than continued anemic growth next year.

The visiting economist said Japan must embark on “structural reform, deregulation and a complete freeing up of trade, especially in the highly protected agricultural sector”.

At a breakfast meeting hosted by Mr Katsumi Nakada, the Japanese Consul-General, Dr Tanaka said Keynsian advisers have led the Japanese government to misuse resources by spending nine per cent of the GDP a year on public works, compared with two per cent in the US and Germany.

“Fiscal stimulus will not be enough to continue the recovery in the Japanese economy – brand new policies are needed,” he said.

Corporate reform in Japan means more job losses. Unemployment is already five per cent, and household income levels are deteriorating.

Consumer spending is unlikely to revive while people are fearful of losing their jobs, particularly since the state pension scheme is substantially unfunded. Japan is still a very wealthy country.

But 55 per cent of the equivalent of US$13 trillion owned by investors is lying around in banks and post office savings accounts at close to zero interest rates.

“That is too high, people must be encouraged to take some risk,” said Dr Tanaka.

“More investment in start-up companies, retraining of workers and the deregulation of economic procedures are needed for the IT revolution which is already starting to change the old Japan. Complete liberalisation of trade is the next phase.”

That would be highly beneficial to the WA farming community. The problem is that this process could take five to 10 years.

Any moves by the government to ease prohibitive restrictions on agricultural imports have always provoked a backlash from rural voters.

However, the ruling LDP party is beginning to lose seats in urban areas because of the stalled economy, and important Upper House elections are due in July.

Dr Tanaka, is president of the 21st Century Public Policy Institute think tank, and the author of several books, including The Japanese Economy After the Big Bang.

He keeps in close touch with his counterparts in Washington, and he has positive tidings.

“I expect US monetary policy to be loosened quite soon. Alan Greenspan will cut interest rates, and we are not going to see a bursting of the stock market bubble,” he promised.

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