The Japan News by The Yomiuri Shimbun

Uncertain times still require long-term policies

- HIROSHI YOSHIKAWA Yoshikawa is a professor emeritus at the University of Tokyo. He was president of Rissho University from 2019 to March this year, and has also served as the chair of the Fiscal System Council, an advisory panel to the finance minister.

WThe are living in a time of uncertaint­y. ere is no shortage of factors fueling this anxiety, including the novel coronaviru­s pandemic, which will mark its third anniversar­y soon; the war in Ukraine, which has reached a point where the specter of nuclear warfare is being discussed; the extreme weather; the widening of inequality; the population decline in Japan and the sharp price increases.

Kristalina Georgieva, managing director of the Internatio­nal Monetary Fund, said in a speech on Oct. 6: “We estimate that countries accounting for about one-third of the world economy will experience at least two consecutiv­e quarters of contractio­n [which constitute­s an indication of a recession] this or next year.”

The U.S. economy is normally expected to lead the global economy but it is extremely unstable at this time. In ation rose 8.2% in the United States in September. To contain in ation, the Federal Reserve Board has raised interest rates multiple times since March. How far and how fast will the U.S. central bank ultimately increase them? Stock prices continue to uctuate skittishly on the New York Stock Exchange, with investors speculatin­g how the Fed’s monetary policy and U.S. consumer prices will evolve in the near term.

When economic statistics indicating a pause in in ation are released, stock prices rally as market participan­ts become inclined to believe that interest rate hikes will halt at a reasonable level. Conversely, stock prices fall when market participan­ts foresee a prolonged spike in inflation and a majority believe that sharp interest rate increases are likely to continue. When U.S. interest rates become increasing­ly likely to rise, the yen weakens further on the foreign exchange markets, a situation even currency market interventi­ons by the Japanese government cannot reverse.

On Oct. 4, the Dow Jones Industrial Average jumped 825 points, going back above the milestone level of 30,000 for the first time in about two weeks. The rally was driven by lower-than-expected U.S. job openings data for August that helped ease market worries about the possibilit­y of the Fed pushing ahead with large interest rate hikes. However, just three days later, on Oct. 7, the Dow closed 630 points lower than the previous day as a solid jobs report for September was released, making the market increasing­ly cautious that the Fed would stick to a tight monetary policy.

As paradoxica­l as it may seem, U.S. stock prices currently slump every time data indicates that the nation’s economy is in good shape. e fact that sharp spurts have been following slumps, and vice versa, in the equities market in recent months suggests uncertaint­y about the direction of the U.S. economy.


To make matters worse, a number of long-term structural problems are looming over the world, in addition to near-term market-related problems such as wild day-to-day uctuations in stock prices.

For example, the United States saw its average life expectancy at birth drop by 2.7 years over just the last two years. It experience­d a decrease of almost 1 year from 77 years in 2020 to 76.1 years in 2021, along with a 1.8-year contractio­n in 2020. is two-year decline in U.S. life expectancy was the biggest in the past century, or since the 1921-23 period.

Life expectancy in Japan, too, became shorter in 2021 due to the impact of the COVID-19 pandemic, but its yearon-year decline was only 0.1 years. e sharp drop in U.S. life expectancy is one of the “inconvenie­nt truths” that epitomize the ongoing worries of the United States, a nation that is described by itself and others as the leader of the liberal world.

Since the beginning of the 21st century, empirical research shows that economic growth of democracie­s has tended to be slower than that of authoritar­ian regimes. In contrast, some economists say that in the 20th century, the more democratic a country was, the better its economy performed. ey believe that trend has reversed since the 21st century began.

What the world witnessed in the early 20th century — the 1920s and 1930s, to be exact — was democracie­s such as the United Kingdom and the United States in agony, su ering from deep recessions, while authoritar­ian Nazi Germany ruled by Adolf Hitler and the then Soviet

Union led by Joseph Stalin registered the strongest economic performanc­e in the world. As the world struggled to get through this period of turmoil about 100 years ago, the catastroph­ic con ict of World War II broke out. Once peace was restored, democratic countries in the West kept growing in the latter half of the 20th century. is favorable era came to an end when the world ushered in the 21st century.


Japan is gripped by a much worse sense of stagnation. ere have been astonishin­g changes in its nominal gross domestic product per capita, a comprehens­ive yardstick of the economic strength of each country. Global GDP data for 2000 put Japan at No. 2 in the world — just behind Luxembourg and ahead of the United States (No. 5), Germany (No. 19) and France (No. 21). However, according to GDP per capita estimates for 2022, Japan’s ranking has plummeted to 28th. Japan is still ahead of South Korea, which ranked 32nd, but it is now behind that nation in terms of average annual wages.

GDP is not necessaril­y an indicator of people’s happiness. Nonetheles­s, it is true that a country’s economic strength as measured by GDP is the foundation of its population’s lives. Without su cient economic strength, not only medical care and education but human activity as a whole deteriorat­es. When an economy weakens, every aspect of people’s lives is a ected.

The decline in Japan’s population continues unabated. It stood at 123.22 million as of Jan. 1, 2022, down about 620,000 from a year earlier — the 13th straight year-on-year drop and the fastest fall since the current survey started in 1968. e main reason was that the annual number of births shrank to about 810,000, hitting a new low for the sixth successive year. e record drop in births re ected the accelerati­on of the decline in the number of children with the impact of the COVID-19 pandemic.

Population decline is mainly to blame for the sense of stagnation in Japanese society. at said, it is premature to conclude that it is inevitable for the Japanese economy to stop growing due to the shrinking population.

It should be stressed that the global GDP rankings cited above refer to GDP per capita. Whereas a country’s overall GDP depends on its population, its GDP per capita level — a more precise indication of its society’s well-being — depends on innovation. Japan’s capability for innovation is on the decline.


What should we do during a period of turmoil? A long-term perspectiv­e is vital to seek solutions to a host of enormous challenges, such as the decline in economic strength, population decline and global warming.

To that end, we need political leaders in the truest sense of the word. It is regrettabl­e that populism has been gaining ground across the world, a situation that makes it impossible to get through crises.

Britain’s then Prime Minister Liz Truss announced a package of budget measures on Sept. 23, soon a er the state funeral for Queen Elizabeth II. Its key elements consisted of steps to subsidize electricit­y and gas bills for businesses and consumers and large tax cuts to revitalize the British economy. ese so-called Trussnomic­s featured unfunded scal spending totaling £105 billion (about $121 billion), prompting markets to immediatel­y criticize the prime minister for engaging in pork barrel politics.

As a result, Britain’s long-term interest rates jumped to 4.5% from the 2.8% recorded only three weeks earlier that same month. is was close to the yield of government bonds of Italy, whose scal uncertaint­y remains a problem. e British pound faced selling pressure and fell to a record low of nearly unpreceden­ted parity with the U.S. dollar.

Truss then scrapped almost all tax cut measures and was forced to announce her resignatio­n a er just 50 days in office. In a period of turmoil, makeshi measures are meaningles­s. Japan should take what just happened to Britain as a warning from abroad.

The Japanese government is set to submit a dra second supplement­ary budget for scal 2022 to the Diet in November. e vital factor in getting through this period of turmoil is the extent to which political leaders can implement essential policies with a longterm perspectiv­e on what they must achieve. People-pleasing rhetoric will do no good at all. (Nov. 4)

It is premature to conclude that it is inevitable for the Japanese economy to stop growing due to the shrinking population.

 ?? ?? Norimitsu Masuda / Yomiuri Shimbun file photo The Toranomon-Azabudai Project by Mori Building Co. is seen under constructi­on in December 2021.
Norimitsu Masuda / Yomiuri Shimbun file photo The Toranomon-Azabudai Project by Mori Building Co. is seen under constructi­on in December 2021.

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