Japan Economic Plan: Update Dec. 5, 2023

Economic package to ease inflation pain, spur wage growth: Japan PM

Article Source:https://mainichi.jp/english/articles/20230926/p2g/00m/0na/003000c

Article:

TOKYO (Kyodo) -- Prime Minister Fumio Kishida said Monday that his government's new economic package will seek to navigate the economy through a cost-of-living crisis to achieve long-term growth as part of his plans to redistribute wealth in Japan with pay hikes and other similar measures.

The package, which will also seek to address demographic challenges and rev up the chip sector, will be compiled in October, and a supplementary budget will be formed to fund it. Kishida said he will formally instruct his ministers to step up work for drawing up the measures on Tuesday.

Ideas:

The Japanese Prime Minister keeps using the ideas of redistribution of wealth. Maybe he is saying in the Japanese economy companies have all the wealth and the average Japanese worker doesn't compared to companies and what they make.

Also, for a very long time, Japanese workers haven't gotten any wage increases and companies have been accumulating huge sums of profit through the years.

There are significant demographic challenges in the Japanese economy and society. For example Japan is a aged society and each year, each decade, the population is older and older which puts strain on the pension system and the labor force, and also reduces consumer spending.

And then add in the lack of working women in the workforce. or working women in higher level jobs or management positions. Working women are under-represented in the Japanese economy overall.

And then add in also the lack of real immigration into Japan which can re-vitalize the economy like immigration as done in the US and other countries.

The chip sector is a late-blooming sector or more correctly has lost significant market share to Taiwan, South Korea, even China.

Article:

The package has five pillars -- easing the pain of inflation on households, spurring more wage growth, increasing investment, addressing challenges posed by the nation's declining population and securing the safety and security of the Japanese people.

"People are struggling to cope with rising prices. Private consumption and capital expenditure lack strength and remain unstable," Kishida told reporters as he announced the outline.

Ideas:

Lets examine the five pillars as stated above;

1. Easing the pain of households: Inflation has been on-going for a few years in Japan and the Bank of Japan seems to just be letting inflation run its course with very little significant remedies to slow it down. 

2. Spurring wage growth; The Japanese government can only suggest to Japanese companies to increase wages and can't force them to do it. Many large companies have already increased wages but many small and medium-sized companies have not because of inflation and their profit margins are just to thin at this time.

3.Increasing company investments; Again the Japanese government can't force companies to spend money in investments, as companies might until they significant improvements in the Japanese economy.

4. Declining population; We touched on this earlier as Japan is a rapidly aging society which can put a lot of strain on the economy. At the same time, many older workers in Japan want to keep working, but society and companies don't have the correct mindset to allow older workers to continue to work. 

Japan is facing a significant labor shortage and if more women and more older workers can get valuable work, it can do a long way to slowing down the labor shortage and improve the economy overall.

5. Securing the safety of the Japanese people; Japan is one of the safest countries in the world with a very low rate of violence or crime. But it is increasing as people lose hope and start to do things not normally seen in Japan.

Japan for a very long time was in state of de-flation, but after the pandemic prices started to increase significantly and the Japanese population was not prepared for the continuous increase in prices, that was seen in other parts of the world.

Private consumption or consumer spending is not going to be significant until inflation decreases significantly or until all Japanese workers can take significant wage increases, where up to 70 percent of the Japanese workforce doesn't work for large companies.

Article:

"We will implement economic measures to properly distribute the fruits of growth to the Japanese people," Kishida said.

The total amount to be spent on the package has not yet been worked out, but the government faces the difficult task of signaling a break from a period of "crisis-mode" spending measures to cope with the COVID-19 pandemic and Russia's war on Ukraine.

Ideas:

Just how is the Japanese government going to properly distribute the fruits of growth? A government can only do so much as a market economy relies more from companies to help with economic growth and the good of society. If companies are not willing to increase wages to a significant level, not much can be done by the government in a market economy.

Perhaps, because of the pandemic and the Ukraine situation, the Japanese government did a lot of "crisis-mode" spending to help those in need. 

But the Japanese government does need to get out of its crisis mode mindset and find strategies and policies that doesn't increase the national debt which is at an all-time high in Japan. 

Article:

While inflation has maintained a much slower pace in Japan compared to the United States and Europe, the resource-poor country has also seen a rise due largely to higher prices of imported energy and raw materials.

The government will retain subsidies put in place to lower fuel costs as rising energy prices, inflated by a weaker yen, have dented household consumption.d

Ideas:

The variance between US key interest rates and Japan's key interest rates has caused the Japanese currency to be at an all-time low, which places a lot of pressure on import prices especially for the US and the EU.

Its good that the Japanese government is retaining needed subsidies for households related to fuel costs as the weak yen has increased energy prices for households and companies too.

Because of inflation maybe many households extra income, they used to have, has been significantly reduced the past few years.

Article:

The package will also seek to support reskilling workers and encourage small and midsize companies to raise pay for their employees, with Kishida having set a goal of promoting more wealth redistribution, describing his approach as "a new form of capitalism."

After the COVID-19 pandemic laid bare the vulnerabilities of becoming overly reliant on China for critical components like semiconductors, Japan is seeking to revamp its once-competitive chip industry and protect its economic security.

Ideas:

Re-skilling is a a good idea but how many workers and how many companies will actually do it. Japan is in need of re-skilling as its productivity is one of the worst among advanced countries and economies.

In a market economy, its hard to get companies to do anything unless the government directly intervenes with some need and significant incentives what can help small and medium-sized companies with wage increases.

Over 70 percent of the Japanese work-force works for small and medium-sized companies and not large companies. In order to really improves consumer spending in the Japanese economy there has to be significant wage increases for the workers in small and medium-sized companies. 

Both South Korea and Japan have become to reliant on the Japanese economy, related to exports and so on. 

But it was natural for both countries to try and maximize business and export in China at the time. But at the pandemic has come and gone, and many limitations of doing business in China has been seen, both South Korea and Japan now see its not so good to be so dependent on China only for trade and business.

Semiconductors, alone, is a different story, as it seems Japan has significantly fallen behind in market share in semiconductors to Taiwan, South Korea , and now China.

Its going to take significant capital investments over the next decade to even begin to catch-up to Taiwan or South Korea.

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Under the new measures, the government will include steps for encouraging investment in strategic sectors, Kishida said.

Hiroshige Seko, secretary general for the ruling Liberal Democratic Party in the House of Councillors, has been calling for a package of between 15 trillion ($101 billion) and 20 trillion yen.

Ideas:

To secure investments in strategic sectors, the Japanese government is going to have to provide significant incentives to get Japanese companies to invest when the economy is not so good at this time.

The Japanese government has got to make the incentives strong enough where companies want and need to invest. Even the 15 to 20 trillion yen might not be enough, but it each company were given substantial yen to do it, they might do it.

The Japanese government might need to go so far as give companies risk-free investments, and if they fail, they don't need to pay any of it back.

Article:

He has been a supporter of fiscal stimulus and bold monetary easing under the "Abenomics" program led by former premier Shinzo Abe, which sought to boost the economy.

The Bank of Japan has stuck to its ultralow rate policy, diverging from global peers like the U.S. Federal Reserve and the European Central Bank, which have been raising interest rates to rein in soaring inflation.

Ideas:

The one good idea about " Abenomics" was the opening up the Japanese economy to more foreign tourism, as their were record numbers of tourists from other countries in 2019.

This year, 2023, might be slightly less than 2019, as the Japanese government has reduced its covid measure, but 2024 might see record numbers, and the yen is weak, foreign tourists have more purchasing power to spend more in Japan.

The Bank of Japan has used its strategy to manage the Japanese economy just like the US Federal Reserve has their strategy and the EU has their strategy too.

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The yen's recent depreciation reflects the policy divergence, leading Japan to see cost-push inflation for over a year. BOJ Governor Kazuo Ueda reiterated on Monday that monetary easing is necessary because Japan is at a "critical" juncture in achieving a virtuous cycle of pay and price hikes.

Ideas:

Over the past two years or so the Bank of Japan keeps suggesting that the Japanese economy is too weak for key interest rate increases as there can be many side-affects to increasing the key rate.

Increasing the key rate is not a sure-fire way to reduce inflation but many central banks still use that strategy as a way to try and lower inflation.

So the Bank of Japan is not been in-step with other central banks but it seems to be somewhat OK for the Japanese economy, but at the same time inflation hasn't decreased too, as the Bank of Japan seems to take an hand-off approach and just letting inflation run its course.

Article:

Asked about the need to stem the yen's fall, Kishida said Monday excessive volatility is undesirable, and currency moves should reflect economic fundamentals.

"We will continue to closely monitor developments in the currency market with a heightened sense of urgency," he said, amid market caution about another round of yen-buying, dollar-selling intervention by Japanese authorities.

Ideas:

The Japanese government, and the Prime Minister and the Bank of Japan, always try to keep the picture clear and not cause harm or cause the financial markets to panic. 

They are saying they are monitoring the situation, but other than some Bank of Japan moves with bond rates, not much has really been done to stem or keep the yen from being significantly weak, over the past two years.

The dollar-selling interventions seem to be a quick-fix to the problem and really doesn't help that much over-time.

Have a nice day and be safe!