“Abenomics” continues, the road to recovery is long

Japan’s interest rates are extremely low. The current corporate loan interest rate is only about 2%, and the common people’s mortgage interest rate is as low as about 0.6%. Japanese households’ financial assets other than real estate are listed on the stock market 15%. The market value of the stock market rose about 2 times.

In the past few years, Chinese tourists have brought great economic benefits to Japan. Companies can feel that Japan’s economy can grow by more than 1% under the stimulation of tourists’ consumption.

From the perspective of the economic structure, Japan’s low birth rate, serious aging, insufficient labor market flexibility, and long-term insufficient demand make it difficult to solve the “Japanese disease” of low growth and low inflation in the short term.

On August 28, 2020, Japanese Prime Minister Shinzo Abe announced his resignation, causing a global uproar and controversy. After Abe was re-elected as the prime minister of Japan at the end of 2012, he began to fully implement “Abenomics” in 2013, hoping to pull the Japanese economy out of the 20-year recession.

Now that more than seven years have passed, how successful is “Abenomics”? What are the experiences and lessons? What economic policy will the Japanese government implement next? Where is the Japanese economy going?

In response to this, Southern Weekend interviewed Tomuki Izumikawa, Vice President of the Japan Association for the Promotion of International Trade, Fang Dehui, Chairman of the Ryukyu Economic Strategy Research Association (Okinawa Branch of the Japan Association for the Promotion of International Trade), and Xing Yuqing, Professor of Economics at the Graduate School of National Policy Research, Japan. And Shen Jianguang, chief economist of JD Finance.

Corporate profits increase, structural problems still exist

Southern Weekend: How to evaluate the achievements of “Abenomics” in the past seven years? Has it really helped Japan to get rid of the economic stagnation of the previous 20 years? Has Japan escaped deflation?

Shen Jianguang: Abenomics has achieved certain results in the seven years of its implementation. In fact, some of its goals have been achieved: the average real interest rate from 2008 to 2012 was 2.85%, which fell to 0.43% from 2013 to 2017, and the cost of capital was significantly reduced; the real effective exchange rate index of the yen fell from 97 in November 2012 to 2014 The Japanese stock market has attracted a large amount of capital inflows and has doubled since Abe took office. Cost reduction has helped corporate profits significantly increase; Abe’s “female economics” has begun to take effect, and the promotion of flexible employment has increased the number of female employees in seven years 12.6%, much higher than 3.1% of men in the same period.

In response to the “uselessness” view of Abenomics, we believe that Japan’s economy has been hit hard after the financial crisis and the Fukushima incident. In view of the painful lessons of deflationary policies for Japan and the global economy in the history, if the “Abenomics” is not implemented drastically “Then the Japanese economy will completely fall into a deep economic recession and deflationary spiral.

But “Abenomics” failed to eradicate the chronic problems of the Japanese economy. Judging from its own problems, first, the consumption tax was raised twice in 2014 and 2019. Although there are considerations of raising funds for fiscal expansion, the result is that the sluggish household consumption is squeezed again, and inflation lacks upward momentum. ; Second, the implementation of structural reforms is not strong enough. From the perspective of the economic structure, Japan’s low birth rate, serious aging, insufficient labor market flexibility, and long-term insufficient demand make it difficult to solve the “Japanese disease” of low growth and low inflation in the short term.

Tomoki Izumikawa: From 2013 to 2019, the average annual real GDP growth rate of Japan was 1.04%, which is not bad. Prices rose by 0.83%, showing a gradual upward trend. These data indicate that Japan has gotten rid of deflation to some extent. However, in the current situation of rising prices, real wages are falling, and household consumption is not very strong.

After the implementation of “Abenomics”, although the “quantity” of stock prices and employment has increased, the increase in stock prices has been achieved by the Bank of Japan through measures such as buying large amounts of stocks and guiding the devaluation of the yen. Employment is far more “informal employees” than ” Regular employees”. Therefore, I think “Abenomics” is a model that emphasizes quantity but neglects quality, looks at the present without looking at the long-term, and treats the symptoms rather than the root cause.

Large Japanese companies took advantage of the “dongfeng” sent by “Abenomics” to achieve unprecedented profits. However, this is only the result of policy factors. The structural problems of the Japanese economy and Japanese companies, such as overcapacity, inflexible labor market liquidity, and inadequate application of AI and IT technology, have not been completely resolved.

Fang Dehui: I think deflation has not come out, and it is difficult to come out. Before the epidemic, the economy improved, and people’s consumption would be better, but the overall still did not get out of the deflationary mentality, and everyone did not dare to consume. A friend of mine who has been in China for 21 years returned to Japan. After speaking, nothing has changed. The only change is the increase in convenience stores. In the past few years, Chinese tourists have brought great economic benefits to Japan. Companies can feel that Japan’s economy can grow by more than 1% under the stimulation of tourists’ consumption.

Xing Yuqing: I think Abe has helped the Japanese economy out of the shadow of a recession of 20 years after the bubble burst and out of deflation. Japan was in deflation for 15 years from 1998 to 2012, and prices fell by 4%-5%. Now, although Japanese inflation has not reached 2%, there is still the possibility of falling into deflation, but prices have not fallen after all. , And even rose.

As for the so-called chronic disease of the Japanese economy, that is, the aging population and the declining birthrate, which keeps the aggregate demand shrinking, are the main reasons for the deflationary mentality. This is actually because Japan has entered a postmodern society. Does one have to get married? Do I have to have children to get married? This is worth thinking about. With social progress and technological development, developed countries may all embark on this path.

Quantitative easing continues, the yen is expected to appreciate

Southern Weekend: With Abe’s resignation, will the Bank of Japan continue to implement quantitative easing policies? Will the amplitude be reduced? Will the yen appreciate next?

Shen Jianguang: Yoshihide Suga’s position in the Abe cabinet is actually equivalent to that of the Deputy Prime Minister. He is one of the main implementers of Abe’s policies. He strongly supports “Abenomics” and is expected to continue to pursue “Abenomics” after taking office, including support The Bank of Japan continues to implement quantitative easing. Among other candidates who may become Japanese prime ministers in the future, Shigeru Ishiba is the only one who opposes monetary easing. Fumio Kishida, Taro Kono, and Toshimitsu Motegi have no objections.

However, the Bank of Japan has less room for quantitative easing, and the follow-up may “save ammunition.” After the outbreak of the new crown epidemic in March, the Bank of Japan announced that it will increase quantitative easing. At present, it can purchase up to 12 trillion yen ETF (transactional open-end index funds), 20 trillion yen commercial paper, 20 trillion corporate bonds and unlimited The amount of national debt.

According to our statistics, as of August 31 this year, the Bank of Japan purchased 54.37 trillion yen in government bonds, 2.68 trillion in commercial notes, 1.79 trillion in corporate bonds, and 5.74 trillion in ETFs; a total of 535.7 trillion in government bonds and 4.9 in commercial notes were held. Trillion, corporate bonds 5.7 trillion, ETF assets 34.0 trillion, equivalent to 99% of Japan’s GDP. Currently, the Bank of Japan already holds about half of Japanese government bonds and more than 80% of ETF assets. Considering that the marginal effect of continuing quantitative easing has weakened and the liquidity trap has emerged, the scope of actual asset purchases may be relatively limited.

The appreciation pressure on the yen today is greater. The fundamental reason is that countries have carried out substantial monetary easing under the epidemic, while Japan’s previous easing has been large and there is limited room for continued easing. At present, the representative interest rate difference between the United States and Japan fluctuates at 60bp (basis point), which is at a historically low level. Under this background, it is difficult for the yen to depreciate.

Xing Yuqing: Interest rates were originally a traditional currency tool, but when the interest rate became zero, the Bank of Japan directly entered the market to buy treasury bonds, stocks, corporate bonds and commercial paper to monetize debt. According to mainstream traditional monetary theory, this would lead to inflation, but Japan did not experience inflation, which confirmed the non-mainstream modern monetary theory: a country issuing sovereign currency does not have to worry about bankruptcy. When the economy is at risk of deflation and insufficient aggregate demand, such as Japan, it is necessary to promote employment through quantitative easing and fiscal stimulus.

Before Abe came to power this time, the governor of the Bank of Japan Shirakawa Fangaki was very conservative. After the financial crisis broke out, the European and American central banks made allowances. The Bank of Japan insisted on not measuring allowances. This led to a large appreciation of the yen and the highest value of the yen against the dollar. 1:75. After Abe took office, he corrected the excessive appreciation of the yen. Shirakawa Fangaki stepped down ahead of schedule, and Kuroda has succeeded as Governor of the Bank of Japan, and has firmly implemented the quantitative easing policy. The yen began to depreciate after Abe was elected, and it depreciated to a maximum of 1:124-125 against the U.S. dollar, and then rebounded back to around 1:105-110. After the depreciation of the yen, the export benefits of Japanese companies have increased significantly and their export competitiveness has also risen.

The generous amount has brought benefits to Japanese companies and households. Japan’s interest rates are extremely low. The current corporate loan interest rate is only about 2%, and the common people’s housing loan interest rate is as low as about 0.6%. 15% of Japanese households’ financial assets other than real estate are on the stock market, and Abe has been in power for the past 8 years. The market value rose about 2 times.

I think the follow-up trend of the yen depends on who succeeds. Yoshihide Suga is the maker and executor of Abe’s policies. His succession as prime minister means that “Abenomics” will continue, and Kuroda will not be replaced. Kuroda once said, “As long as inflation does not reach 2%, the amount will be generous. Will not stop”. In fact, if it stops suddenly, there will be a stock market crash.

Hiding wealth in the people, debt is large but risk is small

Southern Weekend: In 2019, Japan’s government debt accounted for 200.6% of GDP. Fitch’s rating forecasts that it will rise to 259% this year and therefore downgrades Japan’s sovereign rating. So is there limited room for Japan to implement fiscal policy? What is the risk of a debt crisis? Can the consumption tax be raised?

Tomoki Izumikawa: Some people say that these debts are all domestic in Japan, and Japan’s assets total more than 1,000 trillion yen. The current situation is not too problematic. But no matter what, this development is unsustainable, and the enterprise is very dangerous. Therefore, Japanese companies hope that the Japanese government can properly handle their debts, but they also believe that the current profits they have achieved are the result of the government’s proactive fiscal policy and flexible monetary policy. They do not want the government to stop these policies. The current situation can be said to be a “dilemma.” “.

After the Japanese government raised the consumption tax rate in 2019, personal consumption in the fourth quarter fell by 2.8%, which is -10.6% if it is an annual average. This shows that the increase in consumption tax has caused a serious contraction in household consumption. The Japanese government says that consumption tax is a financial source for social security. Therefore, whether to lower the consumption tax in response to the current difficulties needs to be carefully studied.

Fang Dehui: Although the government debt is high, it is rich in the people. The power of the enterprise, the power of the country. The consumption tax is expected to increase in the future, only at the point of time. The corporate tax has dropped from 37% to 29%, which is already very low, and the corporate tax is taxed only after profits are made.

Shen Jianguang: During the Abe era, finance was an important driving force for the Japanese economy. Under the concept of “proactive fiscal policy”, Japan’s economic growth relied on finances. Compared with the negative fiscal pull on GDP before the financial crisis, the public sector will generate a positive pull of 0.1%-0.6% of GDP every year after the financial crisis. .

In the post-epidemic period, Japan’s economy needs financial support even more. In the fourth quarter of 2019, the Japanese economy has fallen into negative growth due to the increase in consumption tax. Under the epidemic, the first half of 2020 will fall by 5.8% year-on-year. Taking into account the slow recovery of private sector demand during and after the epidemic, government fiscal expenditures will continue to be an important means of underpinning the economy for a long time. The fiscal stimulus measures introduced by the Japanese government in response to the epidemic have exceeded 40% of GDP.

There is no risk of a government debt crisis in Japan at this stage, but there is little room for continued fiscal expansion. The interest rate of Japanese government debt is generally zero or negative, and the debt is basically the currency, so the interest rate pressure is very small. However, in total, the epidemic will further increase the government debt/GDP ratio, which has already exceeded 200%, and further squeeze the future fiscal space.

The consumption tax no longer has the possibility of continuing to increase, and the government should consider other sources of finance. The Japanese government may need to consider making companies bear more tax burdens, such as adjusting corporate fixed asset depreciation policies and imposing taxes on overseas cash of large Japanese companies.

Xing Yuqing: Monetary policy and fiscal policy are integrated. If there is no economic activity, there will be no loans. Traditional monetary policy does not work. At this time, a proactive fiscal policy is needed. Especially when the epidemic hits the economy, the government has to send money to everyone and provide various subsidies. The money is changed from the central bank’s purchase of national debt.

There is no risk of a debt crisis in Japan, and even a decline in its rating has no effect. The key to this is how to treat debt. The current situation is that the government is unable to repay all debts with the tax revenue it has received, and it is actually unnecessary. It can keep printing and issuing new money to repay old debts. As long as the sovereignty continues, this model can continue.

The consumption tax cannot be increased in the past five years. Now Japan’s first goal is to restore economic growth, and it is impossible to curb consumption.

According to modern monetary theory, government deficits are corporate and personal wealth, as long as this balance is not broken. Although the Japanese government has a mountain of debt, Japanese companies have more than 500 trillion yen in cash, and Japanese households have high savings. Japanese household wealth is growing during Abe’s administration, and the total amount of cash in Japanese companies has more than tripled.

Conservative obstacles and labor shortages are difficult to solve

Southern Weekend: Structural reform is considered to be the top priority of Abenomics. How do you think it has been implemented? Has the rigidity of the labor market in Japan and the employment of women improved? In addition, Abe actively accepted foreign talents when he was in office. Will Japan continue his practice from now on? Can Japan’s labor shortage be improved?

Tomoki Izumikawa: Compared with 2013, the employment of women increased by about 3.07 million in 2019, among which, “regular employees” increased by about 1.31 million and “informal employees” increased by 1.76 million. The employment situation of women can be said to have expanded in number, but the quality needs to be further improved.

In order to supplement the labor force, the Japanese government has decided to relax restrictions and conditions for low- and middle-end labor. However, the Japanese people hope that Japanese companies will not hire these laborers at low prices, in case the wages of Japanese laborers will fall. Japanese companies welcome more high-end talents to work in Japan.

Fang Dehui: When I was studying abroad in the 1990s, my hourly wage for part-time jobs was 595 yen. Now it’s usually only 600 to 700 yen. But in the past two years, travel-related things suddenly reached 1,000 yen. Those who can speak Chinese are higher than those who can English. , Okinawa and other outlying islands even have higher wages than Tokyo because of tourism. But the wages of regular employees have basically not increased.

Companies are pursuing interests. If the use of foreign labor can increase profits, more companies will follow suit and give feedback to the government to adopt more relevant policies.

Shen Jianguang: Structural reforms have become shortcomings, mainly because the labor market reforms are lagging behind. A major goal of the Abe government’s labor market reform is to raise wages, thereby raising inflation expectations and consumption levels. However, slowing productivity, rigid labor market, and insufficient high-quality manufacturing jobs have plunged Japan into a vicious circle where labor shortages and stagnant wage growth coexist.