The governing Democratic Party of Japan won its historic electoral victory last August with promises of child allowances, farmer subsidies, lower taxes and other sugared inducements to voters. Now suddenly, under new Prime Minister Naoto Kan, the talk is of doubling the consumption tax from 5 to 10% to attack a no longer tolerable “debt crisis.”
Shukan Post (July 9) is indignant – first at the “180 degree turnabout” from the platform that got the party elected, and secondly at a measure that in its view will “destroy Japan.”
What astonishes the magazine is that everyone seems to be swallowing Kan’s “propaganda.” Even the media, whose critical reflexes are their stock in trade, are falling into line. Their chorus of support consists of three lines: “Japan is in financial crisis;” “Japan is becoming another Greece;” “We mustn’t pass our debts on to our children.”
A much repeated statistic, issued by the Finance Ministry and parroted by the media, has it that Japan’s combined central and local government debt amounted as of March 2009 to 900 trillion yen, nearly twice its GDP. Even Greece, we hear, whose near default last spring almost derailed (and might yet derail) the euro, was in debt only to the tune of 1.2 times its GDP.
However, “many economists dismiss that,” says Shukan Post. Among them is Hidehiro Kikuchi, director of the Japan Finance Research Center. The 900 trillion yen figure is wildly inflated, he says. It fails to take into account government investments and assets totaling some 505 trillion yen. Factor these into the equation, he argues, and the actual debt works out to about 367 trillion yen – “a figure more or less in line with other developed countries.”
Saitama University economist Koetsu Aizawa takes issue with the comparison to Greece. “Greece’s economy is not strong, and as a member of the euro zone, it was apt to say to itself, ‘If we get into trouble the EU will bail us out.’ Japan, unlike Greece, has an independent currency. If it falls into financial crisis, the market’s regulating mechanisms will go into play. There will be a sell-off of Japanese stocks and bonds, the yen will depreciate, exports will revive.”
Moreover, he adds, Japan’s sovereign debt, unlike Greece’s, is held overwhelmingly within the country, not by foreigners engaged in potentially destructive speculation.
“Of course,” Shukan Post admits, “it would be rash to say that Japan’s finances are trouble-free.” But the consumption tax was raised once before – in 1997, just when the country seemed at last to be emerging from a long post-bubble slump. The result? A plunge back into deflation.
“Prime Minister Kan,” the magazine winds up, “how long are you going to lie to the people?”© Japan Today