Economy key in Sunday’s election
But candidates can’t agree on how to fix the latest recession.
TOKYO — It’s the $6 trillion question: how to jolt Japan out of its 20-year economic slump
The dozen or so parties vying in Sunday’s parliamentary election all agree the world’s third-largest economy needs a jumpstart, now that it has slid back into recession for the fifth time in 15 years.
They are at odds, however, over how to achieve enduring growth.
Former Prime Minister Shinzo Abe, who is poised to head the government again if his Liberal Democratic Party does as well most polls are forecasting, favors forcing the central bank to do whatever it takes to meet an inflation target, of perhaps 2 percent, to break the economy out of a spiral of falling prices known as deflation.
Many economists agree.
More than 20 years after its “miracle economy” bubble burst, Japan seems trapped in a vicious circle of sinking prices and weak demand as sluggish growth forces businesses to slash prices and frugal-minded consumers put off spending.
Creating the expectation that costs of bigticket purchases such as housing or cars will rise due to inflation could help prod people into spending more, said Tony Nash, managing director at IHS Global Insight in Singapore.
“When people are uncertain, they hold cash,” he said. “By stimulating inflation a bit, what Abe’s trying to do is to push those purchasing decisions to now.”
After a strong start to the year, Japan’s recovery from its March 2011 earthquake and tsunami disasters fizzled as crisis-stricken Europe lost its appetite for Japanese exports of cars and electronics. Exports took another hit as a territorial dispute over East China Sea islands set off anti-Japanese protests in China.
Meanwhile, domestic demand faltered, as the anticipated boost from reconstruction following the 2011 disasters fell short of expectations.
Revised data this week show the economy has slipped back into recession. Growth in the AprilJune quarter was revised to a contraction of 0.03 percent. The economy shrank 0.9 percent in JulySeptember from the previous quarter and likely is still contracting, economists say.
The election winner will provide Japan’s seventh prime minister in seven years, though even the front-runner, Abe, is not expected to gain a strong majority. The constant changes in government have stymied progress on reforms needed to adapt the tax system, labor laws and other institutions to suit an era of rapid aging and slower growth.
Like the U.S. and other rich economies, Japan faces the hard choice of either spending its way deeper into debt, which already amounts to more than 220 percent of its 500 trillion yen ($6.1 trillion) GDP, or slashing spending and seeing the economy falter further.
Liberal Democratic Party President Shinzo Abe (in white) shakes hands Tuesday with supporters of the main opposition party on the outskirts of Tokyo during a rally for Sunday’s parliamentary elections.