Jesper Koll is a Managing Director and Head of Research at JP Morgan Japan Securities Inc. He has been analyzing and investing in Japan since becoming a resident in 1986.
Macro Pessimism, Micro Optimism—for years now, this has been the straw to clutch on for those of us who have had to convince global headquarters why Japan still presents a good investment and business opportunity.
The good news is that, possibly, this may be about to change. Call me an optimist, but chances are that the new government is about to embark on a more pro-active and constructive policy that actually creates macro-tailwinds for corporate excellence here in Japan.
Why my optimism? Because for the first time in almost a decade, Japan’s political leadership is actually focusing on setting a goal.
Although hard to believe, the fact is that ever since the demise of the Koizumi-era, Japanese policy making has not had a clearly defined policy goal.
If at all, the LDP’s post-Koizumi leaders appeared to be primarily focused on going backwards—unwinding many of the reform programs put into place by Takenaka Heizo and Koizumi’s leadership team.
In doing so, they lost the plot and lost track of focusing on what the principal goal of all policy making should be: to grow national income.
Without a strong focus on growth, all other policy will inevitably be nothing but “stealing from Watanabe-san to pay for Suzuki-san.”
If the overall pie does not get bigger, somebody will have to lose for someone else to win. It is the death of economics, and the start of a ruthless political economy where everything becomes stuck in a zero-sum game. And trust me, economics may be a lot of things, but it is not a zero-sum game.
Under the leadership of Finance Minister Naoto Kan, the Democrats are now realizing that Japan needs to get back into the game. To do so, they have started to put an overall growth target into place.
While neither new nor finalized, this marks a huge departure from the generalist policies presented so far by the ruling party. Although not final at this point of writing, it looks as though the growth target will be set at 3 percent nominal GDP: real growth of 2 percent and a positive GDP deflator of 1 percent.
That’s right—a positive growth target and a positive deflator. This is in sharp contrast to the current state of the economy where nominal growth is contracting and prices are falling.
And yes, the Democrats are becoming ambitious on growth. That, in turn, is one reason to be more optimistic on macro Japan.
Importantly, the principal reason for setting a growth target is the long-overdue need to set concrete parameters for getting the fiscal deficit back in order. With debt-to-GDP at basically 200 percent, the risk of a debt-deflation spiral has become significant.
To address this, Japan needs policy coordination. All parts of the government—central, local, Bank of Japan, and each and every bureaucracy—need to be brought in line. Without a big-picture macro growth target, it is simply impossible to get buy-in and coordination.
Indeed, anybody who has been visiting the Bank of Japan in recent months must have been struck by the fact that all the BoJ is talking about is Japan’s fiscal problems.
Meanwhile, anybody who has visited the Ministry of Finance walked away with a long lecture on what the Bank of Japan should do.
In other words, the two major institutional players in Japanese policy-making appeared to many observers to be counterproductive to each others’ responsibilities.
Institutional turf wars are exactly what happen when no overriding national policy goal is evident. Kan and his national strategy council are now working to fix this.
Pages: 1 2
