Japan’s economic stagnation and rising public debt are unsustainable, and the country desperately needs to elect new leaders and implement new economic policies now, The Malta Times asserts.
For the past 20 years Japan has suffered from deflation, lost its former rank among global economies and amassed a 190 percent gross public debt-to-GDP ratio — the largest in the world.
Meanwhile, Japan’s government-bond yields have remained low while the living standards of most Japanese are high — and the country’s aging population means fewer bond sales.
According to figures from the International Monetary Fund, even if the savings rate among Japanese remains close to where it is now, the country’s gross debt could exceed gross household assets by 2015. This could lead Japan to seek more foreign investors, who would want much higher returns, to finance its debt.
While falling prices may have provided bondholders with invisible gains, Japan’s deflation pushes the debt-to-GDP ratio inexorably higher.
As expectations of deflation become entrenched — 35 percent of Japanese expect prices to be the same or lower in five years’ time — they will continue to depress consumption.
Moreover, Japan cannot continue to rely on foreign demand for its products to lead its economy as it did in the past. Without a stronger domestic economy, growth will not generate enough tax revenue to reduce the debt. The country’s borrowing is forecast to exceed its tax revenues this year.
Japan must implement structural reforms to raise productivity, fiscal reforms to boost growth and a strong monetary stimulus to make its economy vibrant again.
These measures could range from overhauling its tax code to deregulating farming and removing some protections against foreign competition. Japan also urgently needs to cut business taxes and gradually raise its spending taxes.
All these measures require a bold leadership the country currently lacks.
It is time for the more fiscally astute members of Japan’s current government to set a new economic agenda.
Unfortunately, Japan’s old guard worries that radical steps will precipitate an economic crisis, and so prefers the status quo. It does not realize how inherently dangerous the status quo is.
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