Beck Says Japan's Abe Should Continue Firing Three Arrows

Dr. Vernon Beck Analyzes Japan’s Recession

By Scott Benjamin

Dr. Vernon Beck, a former president of the Japan Society of Fairfield County, says that even though that country recently plunged into a recession and new elections will be held next month, its economy is better than when Prime Minister Shinzo Abe established his three arrows package nearly two years ago.

The Ridgefield resident noted that through 2013 and early 2014, Japan’s economy grew after more than 20 years of stagnation.

Mr. Abe’s initial package included a $10.3 trillion Yen ($114 billion) fiscal stimulus package and actions by the Bank of Japan, the equivalent of America’s Federal Reserve Board, to ease credit. The third arrow encompasses structural reforms that would make the economy more competitive and place more women in the work force as foreign-born workers provide daycare services.

Reports indicated that the economy was notably improved through 2013 and early 2014.

However, The Japan Times reported Nov. 26, 2014 that the Organization for Economic Cooperation and Development has projected that the Japanese economy will grow by just 0.4 percent in 2014 and 0.8 percent in 2015.

Dr. Beck said an increase Apr. 1 in the consumption tax from five to eight percent has resulted “in a deflationary mindset” that is similar to the conditions that have plagued Japan’s economy since the early 1990’s.

“It was partly a psychological thing,” he said in a November 19, 2014 phone interview. “People purchased big-ticket items before the tax increase.”

CNBC reported Nov 23 that the prime minister is seeking an 18-month delay in the scheduled Oct. 2015 increase in the consumption sales tax from eight percent to 10 percent.

The BBC reported Nov. 23 that some Japanese media had reported low approval for Mr. Abe and questioned why an election was being held two years ahead of schedule. The BBC added that Mr. Abe is seeking a new mandate for his economic program.

Dr. Beck predicted that Mr. Abe’s party will win the Dec. 14 snap election slated for members of the National Diet. He said Mr. Abe’s popularity has declined but the opposition is splintered.

He said the net result will be to “buy time” to further establish the three arrows, since the election is being called two years ahead of schedule and would, in effect, allow Mr. Abe to stay in office longer if his party prevails in the snap election.

Dr. Beck said that delaying the next sales tax increase “should help.”

A 2014 WashingtonPost.com editorial applauded the prime minister and the National Diet for lowering the corporate tax rates from 35 percent to the high-20-percent range, noting that Japan has been considered one of the least business-friendly countries.

The stagnation of the last 20 years is in marked contrast to be booming export-driven boom of the 1980s.

In the late 1980’s there were reports that Japan, which then had the second largest economy in the world, might overtake the United States, which was the leader.

There were protests in Washington over the volume of Japanese exports coming into the United States. Barbara Franklin of Bristol, who served as Commerce secretary for former President George H.W. Bush has said in the 1980s the Japanese “were eating out lunch” in the semi-conductor market.

However, Washington Post economics columnist Robert Samuelson wrote in 2013 that Japan’s economic success was largely built on a housing and stocks bubble that collapsed. At the time, the Japanese Yen had a high value, which discouraged exports at a time when other Asian nations were offering cheaper labor

Mr. Samuelson stated that after the housing and stocks bubbles burst, the Japanese, who value savings, became even more cautious about their purchases and many of them only spent a small fraction of their discretionary income. This led to the deflation that has persisted since the early 1990s.

Japan’s government has annually run deficits, leaving it according to Mr. Samuelson, with a 214 percent government debt, the largest in the world and about twice the average of the other developed countries.

Mr. Samuelson has stated that Japan has been too dependent on stimulus packages, which eventually fade and leave the country’s economy in recession again. He has cautioned that fiscal stimulus should only be short term and used in dire consequences, such as the package that American President Barack Obama employed in early 2009 to resolve the economic hysteria from the fiscal crisis.

However, Dr. Beck noted that Japanese consumers are noted for their savings.

“The savings partly offsets that huge debt,” he said. “Japan is about the only country that could afford to have the much debt.”

CNBC reported Nov. 3 that the value of the Japanese Yen has been tumbling in comparison to the American dollar. Although, Dr. Beck said that one result of that decline is that it has boosted Japan’s exports.

Dr. Beck said Japan also has an aging population, with projections indicating that the current figure of 127 million - slightly more than a third the size of the United States - will decline to 100 million by 2050.

He said some foreign-born workers have entered the country to provide daycare so that more women can enter the labor force under Mr. Abe’s reforms. However, many of them are only in the country temporarily, since the Japanese are still resistant to full-scale immigration, which has been a boon in America for decades.

The country also is still recovering from the Mar. 11. 2011 earthquake, which, according to Wikipedia.org, killed 15,887 people and left some municipalities in rubble.

“The country really has set out on a 10-year program,” Dr. Beck said. “It is similar to the destruction in Louisiana after Hurricane Katrina. It is nine years later and that area is still rebuilding.”

On a related subject, he said he agrees with a Nov. 2014 Washington Post editorial that the proposed Trans Pacific Partnership free trade agreement would make Japan’s economy more competitive.

“I think each of the 13 countries in that proposed agreement has strengths,” Dr. Beck said. “Japan’s strengths are in its innovation and educated work force. It doesn’t have as much cheap labor as some of the other countries in that proposed agreement and it doesn’t have the land for agriculture the way the United States has the San Joaquim Valley. It would be a concern to have a large share of your food coming from other countries. But it would boost exports from Japan and put pressure on some Japanese companies to become more competitive.”

Lou Auletta Sr. of Bauer Aerospace in Bristol has said the Japanese still make the best cars in the world.

Toyota, for example, announced in November that it was introducing the Mirai, a fuel car that would cost $57,000. It could be powered at any of the tiny number of hydrogen stations that are available.

The country has a 99 percent literacy rate and is noted for its state-of-the-art companies, such as Toyota, Sony and Canon.

However, Mr. Samuelson has stated that it lags behind the United States overall in its spirit of enterprise and flexibility in shifting business and labor resources.

Greg Boyko of Canton, the honorary counsel general to Japan from Connecticut, has said Japan has a very stable government system, yet the country has gone had elections for seven prime ministers since Junichiro Koizumi left office in 2006.

Mr. Boyko has called Mr. Koizumi a transformative figure who was able to bolster confidence in Japan during his tenure as prime minister from 2001 to 2006. Mr. Abe was his immediate successor, left office after about a year and then was elected to a new term in Dec. 2012.

On another topic, Dr. Beck said he is concerned about Mr. Abe’s call earlier this year to end to Japan’s 60 years of passive military action, allowing its military to fight abroad. At least one report indicated that his announcement riled China and brought concern to some Japanese citizens.

“There is so much posturing that goes on,” Dr. Beck said, noting that Mr. Abe apparently has been compelled to respond to China’s growing military strength and the tensions over what CNN has described as “a bitter territorial dispute” over a tiny chain of uninhabited islands in the East China Sea.

However, he said he was pleased that Mr. Abe and China’s President Xi met to discuss issues in November at the Asian Pacific Economic Conference in Beijing.

CNN reported that it was the first time in three years in which the leaders of those two Asian countries met.