Is the Japanese Government Doing Enough to Help the Economy

Japan’s economy shrank at a record 15.2 percent annual pace in the first quarter of 2009 as exports collapsed and consumers and businesses cut spending. So, one has to question if the Japanese government is using all available measures to help the distressed economy.

Indeed, exports which have been the main driver of the Japanese economy over the past few decades are deteriorating day-by-day due to a weakening global demand and a strong yen. In fact, exports plummeted 45 percent from a year earlier in March, after 49 percent drop in February. Along with a dramatic drop in external trade, domestic consumption is slowing as shrinking industrial production is hitting corporate profits, business investments and causing the job cuts. Also, Japan’s unemployment rate climbed to 4.8 percent in March from 4.4 percent in February, the biggest increase since 1967. To make things even worst Japan’s corporate bankruptcies rose for the 11th consecutive month as banks are more reluctant to lend.

That said, the shocking decline in GDP growth is fuelling calls for more aggressive measures from both the government and the Bank of Japan. Central bank rate cuts and recent actions to purchase the shares and corporate debt from lenders seem to have little effect in face of a deficient demand for Japanese products from overseas. Moreover, coming parliamentary elections and fight for votes between the ruling Liberal Democratic Party in control of the Lower House and the Democratic Party of Japan in control of the Upper House are undermining a fast implementation of the stimulus packages.  For example, this week the Lower House approved a record extra budget of nearly 15 trillion yen ($156 billion) to finance projects to support the unemployed, small businesses and  environmental measures. The opposition-controlled Upper House calls the budget wasteful spending and is likely to vote it down or even delay the vote making the coalition wait to come with extra legislation to pass the stimulus measures.

Anna Fedec,
5/22/2009 1:09:29 PM