Posted by: Kenji Hall on March 31, 2009
On March 31, Japan’s Prime Minister Taro Aso pledged to spend more public money to ease some of the pain caused by the faltering economy. In a speech televised live from the prime minister’s residence, Aso called on his Cabinet and ruling Liberal Democratic Party to draw up plans for another round of stimulus spending (and the extra budget that will be approved to pay for it) by mid-April.
He didn’t say how much more Tokyo will spend. He did outline his top spending priorities, though: propping up the economy, supporting eco-friendly technologies, improving health care, and creating jobs. A half hour later, he was rushing off to catch a flight to London where the Group of 20—the world’s wealthiest countries and fast-growing emerging economies—are to discuss ways to shore up the global economy.
It will be the fourth dose of public spending in six months. Since last October, Japanese lawmakers have passed three stimulus packages worth $750 billion. But less than one sixth of the sum is actual government spending. (It’s still a lot of dough: Today an OECD report predicted that Japan’s public debt will rise to 197.3% of gross domestic product next year, from 172% in 2008.) Whether all that money has helped is debatable. Perhaps it’s telling, though, that few economists think more Japanese stimulus spending will stop the rot at home.
That’s because Japan’s car, machinery and electronics companies export the bulk of their goods to other markets. For Japan’s economy to recover, markets overseas have to stage a turnaround first. In February, exports fell more than 49% from the year before, and in recent months companies have been sharply curtailing output and clearing a stockpile of old inventory.
In a report this week, Macquaries Securities’ Tokyo-based economist Richard Jerram used two graphs to stress how bad things are. Both graphs show stable exports from 2004 through mid-2008. Then exports collapse to all regions and for all major products. The graphs could easily be mistaken for the topography of the Grand Canyon, from ledge to valley floor. “The uniformity of the decline is the most striking feature,” Jerram wrote about the graphs.
Of course, it doesn’t help that consumers aren’t spending money like they used to. Consumers account for about 55% of Japan’s gross domestic product. But rising joblessness and worries about the future have made them more budget-conscious, Goldman Sachs economist Chiwoong Lee wrote in a report today.
They had more to fret about today.
According to Japan’s statistics bureau, the jobless rate rose to 4.4% last month--a three-year high--from 4.1% in January. It’s getting harder for people to find jobs, too. The Labor Ministry said that the ratio of jobs available per applicant fell to 0.59 from 0.67, the largest drop since 1974. That came on the heels of reports that blue-chip companies Toyota, NEC and others are hiring fewer new college grads this year.
With his approval ratings at just 22% in the latest Asahi Shimbun poll and general elections expected by September, Aso is eager to show that he and his ruling LDP are doing everything they can to revive the economy. Aso pointed out that the road-toll discounts, public works projects and cash payouts combined with investments in environmentally friendly technologies would spur longer term growth. That might not have been the pep talk Japanese voters were hoping for. After all, their gauge is smaller bonuses, massive layoffs and less work.
But they’re not Aso’s only constituency at the moment. Calling for more stimulus spending now lets Tokyo plead with other countries at the G20 summit to pour more money into their own economies. Japan is also offering a $100 billion line of credit to aid the International Monetary Fund in easing the global financial crisis. Aso understands that, ultimately, getting other countries to take action could give Japan a much bigger boost.