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2009年2月18日 (水)



--The Asahi Shimbun, Feb. 17(IHT/Asahi: February 18,2009)

EDITORIAL: The shrinking economy


The nation's real gross domestic product tumbled by an annualized rate of 12.7 percent in the October-December quarter, the sharpest contraction since 1974 amid the first oil crisis, and the second double-digit decline in the postwar era.


The drop was far steeper than the 3.8-percent fall in the United States and the 5.7-percent decrease in the euro zone of Europe.


When signs of a simultaneous global recession began to mount last autumn amid the financial crisis that started in the United States, the government believed that Japan would suffer less than the Western nations, the epicenter of the crisis. As it has turned out, however, Japan has been hit harder than any other major industrial country.


The biggest factor behind this drastic deterioration of Japan's economic health is the structural fragility of the economy, which has been too dependent on exports, particularly those to the United States, for growth.


The rapid contractions of the U.S. and European markets have decimated Japanese exports, prompting companies to cut production and capital investment in plants and equipment. Reduced production and shrinking outlays in the business sector are jeopardizing job security, thereby weakening consumer confidence and creating a vicious cycle of contraction.


Given the expected depth and length of the economic downturn and the difficulty of putting the economy back on a growth track, this should be regarded as the biggest economic crisis for Japan since the end of World War II, as Kaoru Yosano, the economic and fiscal policy minister, said.


The question is what must be done.


The corrosive effects of collapsing exports are certain to start choking domestic demand, making the job situation even worse and crimping consumer spending.


The biggest challenge facing the government is how to prevent unemployment from creeping up. It will be necessary for the time being to alleviate the shortage in domestic demand with increased fiscal spending, including that for public works projects.


At the same time, however, policymakers must also see the challenges from medium- and long-term perspectives. What they must remember are the lessons from the 1990s, when Japan went through a prolonged period of economic malaise after the bursting of the asset-inflated economic bubble. Back then, the government spent about 130 trillion yen over about 10 years on public works and other measures to nurture economic growth. But the economic stagnation continued.


Huge fiscal spending to build roads, bridges and public facilities may temporarily relieve a shortage in demand. However, unless such spending lays a foundation for renewed growth, the nation will have to struggle under a fiscal crunch.


The government must curb growth in social security spending despite the rapid aging of the population because it is saddled with a huge amount of debt--a legacy of the spending spree in the 1990s.


In their joint statement issued over the weekend, the finance ministers and central bankers of the Group of Seven (G-7) major industrial nations pledged to act together to provide fiscal stimulus to their economies. But the statement nevertheless stressed the importance of policy measures being consistent with fiscal sustainability.


Japan's policy responses to its economic ill-health in the 1990s lacked the viewpoint of long-term investments to deal with the nation's shrinking population.


There was little effective policy investment for a better economic future, such as expenditures to improve the working environment for women and old people or spending on plans to foster new industries.


The economic crisis has made it clear that the nation's industrial structure is exacerbating the situation. The government should now lay down a vision for a wholesale makeover of the economy, instead of another large but ineffective stimulus plan.


Calls for a new stimulus package are growing within the ruling camp. But can we really expect Prime Minister Taro Aso's government, which is on the brink of collapse, to offer a long-term vision? Both the ruling and opposition parties should try to figure out ways for the nation to overcome its biggest postwar economic crisis.



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