Econ­omy key in Sun­day’s elec­tion

But can­di­dates can’t agree on how to fix the lat­est re­ces­sion.

Austin American-Statesman - - BUSINESS - By Elaine Kurten­bach IT­SUO INOUYE / AS­SO­CI­ATED PRESS

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.

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