- A white paper released Tuesday estimates that asset deflation
has caused 1.16 quadrillion yen in capital losses and calls for implementation
of structural reform to bolster the economy.
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- The report comes at a time when the economy is struggling
under the weight of massive bad loans and excessive corporate debts.
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- The "Annual Report on the Japanese Economy and Public
Finance (2001-2002)" was submitted by Heizo Takenaka, state minister
in charge of economic, fiscal and financial policy, to the regular Cabinet
meeting the same day.
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- The report, the second of its kind drawn up under the
administration of Prime Minister Junichiro Koizumi, was subtitled "No
Gains Without Reforms II."
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- According to the white paper, the country's total asset
value, including land and stocks, plunged after the economic bubble burst
in 1990 and huge capital losses have been incurred amid ongoing asset deflation.
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- The report expresses concern that deflation in general
prices is highly likely to continue for the time being. The nation's economy
is caught in a vicious circle with deflation and the stagnant economy interacting,
it says.
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- It says excessive corporate debts and bad loans are the
main factors blocking a steady economic recovery, and it stresses the need
to carry out structural reform to reinvigorate the economy.
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- The report calls for tax reform and measures to prevent
the hollowing out of domestic industry.
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- It admits that Koizumi's pet policy of structural reform
could bring deflationary pressure to bear on the economy in the short run,
but says reform would boost the potential of economic growth, adding that
new growth would be led by technological advances.
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- Referring to current economic conditions, it says the
economy bottomed out in the January-March quarter and has been staging
an export-led recovery, but its resilience is extremely weak at present
and it is particularly vulnerable to external factors.
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- It is possible the recovery could stall if the U.S. economy
turns sluggish and Japan's exports drop due to the yen's appreciation vis-a-vis
the dollar, the report warned.
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- The white paper also urges banks to take drastic measures
to accelerate disposal of bad loans.
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- The persistent deflation makes it impossible to resolve
such problems as excessive corporate debts and bad loans, the report says,
raising concern about diminishing management vitality in the banking sector
and in its intermediatory functions.
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- Although the white paper fails to address concrete measures
to fight deflation, it calls for reducing the corporate tax rate and implementing
other tax reforms. It also urges improvement of corporate management, and
in research and development.
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- It points out that it is important for the government
to implement flexible and bold fiscal policies when necessary, hinting
at the possibility that a supplementary budget would be compiled this fiscal
year.
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- Regarding financial policies, the white paper commends
the Bank of Japan on its easy monetary policy, saying it is propping up
the economy by reducing the value of the yen. It called on the government
and the central bank to work in tandem to carry out financial policies.
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- Copyright 2002 The Yomiuri Shimbun
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- http://www.yomiuri.co.jp/newse/20021106wo11.htm
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