Articles

Japan's Sustainable Growth Strategy

May 22, 2013

Speaker:
His Excellency Kenichiro Sasae
, Ambassador Extraordinary and Plenipotentiary of Japan to the United States of America

Presider:
Hugh Patrick
, R.D. Calkins Professor of International Business Emeritus; Director, Center on Japanese Economy and Business, Columbia Business School

On May 22, 2013, Ambassador Kenichiro Sasae spoke at Japan Society about Abenomics and Japan's sustainable growth strategy.

"For the past 20 years, we were stuck," Ambassador Sasae said. As a couple of reporters put it in a recent Wall Street Journal article, "An entire generation of Japanese have graduated from college, gotten jobs and, now approaching middle age, they have known only deflation."

Prime Minister Abe has promised to do what is needed to revitalize the economy. Ambassador Sasae shared his views on the strengths of Prime Minister Abe’s economic policies.

"I want to say that this time the policies are not just being written. They are not just being developed. They are being implemented," Ambassador Sasae said. Prime Minister Abe declares a mantra: "Without action, no growth." And Abenomics "is everywhere these days; even American newspapers are talking about Abenomics."

The Elements of Abenomics
On the monetary side, Abenomics embraces a program of quantitative and qualitative monetary easing. The BOJ is buying over $70 billion in JGBs every month. "$70 billion a month is real money. And it is a fundamental policy change for the Bank of Japan and also for Japan."

On the fiscal side, the Abe policies combine stimulus measures, including a $100 billion supplementary budget, with measures for deficit control in the form of consumption tax increases to be implemented next year if economic conditions improve.

"We don't have a tea party movement in Japan, but we know we have to keep on top of the debt, and there are primarily balanced targets in place," the ambassador noted.

Most important is Abenomics' growth strategy, "where the structural changes will occur that will carry Japan forward for the long term." Included are measures to ensure a stable energy supply; reform regulatory and tax regimes; and bolster competition and innovation.

Is It Working? Yes. "Life and Growth Are Returning."
"If you have visited Japan, or if you are Japanese and have returned home recently, you can genuinely feel something starting to happen. Japan has been like a man who was paralyzed but is now beginning to feel his fingers and toes and beginning to move. Life and growth are returning," Ambassador Sasae said.

"Significantly higher stock prices, and an increase in household and corporate confidence," are "feeding into the real economy through consumption and production. Indeed, real GDP grew by 3.5 percent at an annual rate in the first quarter of this year, led by strong private consumption."

A "Turnaround" Growth Strategy
"As a most matured society, Japan is facing big challenges as are most developed countries: that is a decreasing birthrate and an aging society. Energy constraints and environmental concerns. Labor cost and inflexibility and so on," Ambassador Sasae said.

"Prime Minister Abe’s growth strategy is to 'turn around' these constraints into growth factors through mobilizing all resources," including "people, science, technology, competition and innovation." This means:

• Encouraging "the full utilization of the human capital that we already have. In layman's terms, that means we must make full use of the talents of women and seniors."

To enable more women with young children to join the labor force, for example, there will be programs to make child care much more accessible. "We have an abundance of highly educated women whose talents are significantly underutilized. Unleashing this power would be a psychological as well as an economic breakthrough" that "would help open Japan to new approaches and ideas."

• Expanding "the free movement of people, goods and money across the borders" through the Trans Pacific Partnership, or TPP, as well as a Japan-EU economic partnership agreement and a Japan-China-Korea free trade agreement.

"Japan’s GDP is larger than those of all 10 non-U.S. TPP members put together. TPP with Japan included will cover 40 percent of world GDP and a third of global trade.... We hope that by developing these Japan-EU-U.S. economic partnerships in parallel, we can bring about high-standard global trade and investment rules, as well as contribute to worldwide economic growth."

• Transforming sensitive elements of Japan's agriculture sector "into competitiveness, through land accumulation and integration of farming, processing and distributing."

In Shiga Prefecture near Kyoto, the ambassador noted, a group of farmers formed an agricultural corporation to run their small farms as a single enterprise. They built a rice bread processing facility and an outlet store, and now employ 12 women and 30 seniors over age 60.

It's a small change, "but what would happen if that is done nationally? The growth strategy will encourage such farmers and help them to become more competitive, aiming for doubling farmers’ income within 10 years," he said.

• Encouraging "more high-skilled foreign workers, foreign tourists and foreign college students to come to Japan," and doubling foreign university teaching staff at eight national universities over a three-year period.

• Tripling overseas sales of Japanese TV and other programs within five years, and tripling exports of systems and technologies in medical services, aerospace, disaster prevention and smart cities to $300 billion by 2020.

• Diversifying energy supplies among renewable energy, nuclear, LNG and coal, while making best use of advanced, efficient technologies. This includes restarting nuclear plants "once their safety is assured," importing LNG from the U.S., and liberalizing the generation and sale of electric power.

• Adding innovation and competition to Japan's medical sector, including setting up Japanese versions of the U.S. National Institutes of Health, the NIH.

One illustration is a "walking assistance" robot named HAL, developed by a Japanese venture company led by Professor Sankai at the University of Tsukuba, Ambassador Sasae said. Somewhat like the Iron Man suit in the movie series, "the robot can sense bioelectrical signals when the user intends to move his legs. Then, the robot moves its joints in sync with the user's movements. Miraculously, the user can walk again."

Even more amazing, "people who cannot walk by themselves can even walk for a short period of time without even putting on this HAL, because the muscles remember the movements and walk without neurological signals." There are more than 300 HAL suits in use at over 150 facilities.

Another illustration is the work in the field of regenerative medicine by Dr. Shinya Yamanaka of Kyoto University, who won the Nobel Prize in Physiology or Medicine last year for his study of induced pluripotent stem cells.

"The Prime Minister himself will announce a package of the growth strategy in more detail before this summer," Ambassador Sasae concluded. The Japanese people are a hard-working and educated people, "a people who can pull together for a common goal when that goal is made clear to us."

"Indeed growth is possible in Japan. Japan again can become an engine of global prosperity as it once was. And it is my hope and my belief that we are beginning to hear the sounds of the engine coming to life."

***

Professor Hugh Patrick of Columbia, who presided, asked the first question:

We now have Prime Minister Abe and the LDP in power once again, after a three-year interregnum. In what ways is foreign policy similar to, or different from, say, four years ago?

The enduring questions with neighboring countries, about history, economic relations, "even some strategic questions"—these are "the unchanging part. But if there are changes, I would say that there are changes of strategic circumstances," Ambassador Sasae responded. "The increasing threat by North Korea, that is obvious. There are more missiles and more nuclear weapons produced. And we haven't really found the answer, how to find a way out."

"The expansion of Chinese military and naval forces around or in the region, I don't think that is a threat," he said, although it "could be a potential concern if it continues to build up."

***

Q&A with the audience followed:

In recent months, Japan has depreciated its currency quite heavily and quickly. To what extent has this impacted neighboring countries like Korea and China?

"I know that there has been some debate on the impact of the exchange rate, but I want to say this, all this depreciation is basically the result of a change in monetary expansion policy, and the exchange rate is the result of this monetary expansion," Ambassador Sasae replied.

"We all know that this depreciated yen in terms of trade, naturally there'll be impact," he added. "But if you are going for a free exchange rate system, I think it's impossible for the government to decide and manipulate."

How important are changes in defense and military policy, psychologically speaking, in promoting this economic and growth-oriented resurgence?


Some take the view that "there is a discrepancy between what is written in the Constitution and what's happening on the ground. So I think there is some debate that we better change the Constitution to adapt to the status of the day. But this needs to be debated." And "the fundamental peace policy of Japan" is preserved; no nuclear weapons, use of force for defensive purposes only; "we don't have any long-range attack missiles, aircraft carriers, whatever others are doing."

Given that both our president and your prime minister would be interested in increasing exports, do you foresee Japan allowing the United States to have a trade surplus with Japan any time in the next decade?

"Globally we are a deficit country, as you know. But even to the United States we still have some small surplus, but there is no comparison to the imbalance between China and the United States, for example," the ambassador said.

"You can't really balance all the bilateral trade. If you try that, that will be the beginning of shrinking the global trade. So you have to look at trade balance in global terms. And in that sense I don't have any worry about the impact of [yen appreciation] on the Japan-U.S. trade imbalance."

"The relationship between Japan and the U.S. on the economic side—[it's] not simply governed by import and export any more."

"There is a more mutual and collaborative relationship developing these days, rather than you have to compete and confront, in zero-sum terms. I think the trade war is over. I think there is a new age we are confronting," an age in which TPP has "meaning in terms of strategic implications, not only the expansion of trade and investment, but also in terms of a future economic order in the region."

—Katherine Hyde


Topics:  Business

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