Economic Watch: Japan's new PM faces multiple challenges in post-COVID era

Source: Xinhua| 2021-10-04 22:52:33|Editor: huaxia
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TOKYO, Oct. 4 (Xinhua) -- Fumio Kishida, leader of Japan's ruling Liberal Democratic Party (LDP), was elected on Monday as the new Japanese prime minister, the 100th in the Asian country's political history.

In the face of Japan's continued deflationary trend, declining population and other structural problems, including digitizing and greening its economy in the post-COVID era, the Kishida cabinet is under pressure to lead Japan down a stable growth path.

For the time being, the Japanese economy is facing multiple challenges both domestically and abroad.

First, the country's wealth stratification has increased while deflationary pressures persist. The ultra-loose monetary policy introduced during former Prime Minister Shinzo Abe's administration has led to a sharp rebound in Japan's stock and property markets, with wealthy households benefiting from the rise in these asset prices.

Ordinary people have failed to benefit from asset inflation, and their real incomes have fallen instead of risen, leading to less spending, which has made it difficult for Japan's economy to emerge from deflation.

Second, the country faces the heavy burden of a low birthrate and an aging population. As the number of elderly Japanese continues to increase and the population remains in negative growth, Japan's economy is confronted with a labor shortage, a shrinking market, unsustainable social security and a serious fiscal deficit.

In such a context, enterprises are pessimistic about the market prospects with declining investment intentions, leading to long-term sluggish domestic demand and a vicious cycle of intensified deflation.

Third, the new cabinet needs to address the new challenges of digitizing and greening its economy. Japan's digital economy is lagging behind and faces multiple traditional and institutional obstacles. The slow development of an e-government has become a bottleneck in Japan's fight against the COVID-19 pandemic.

At the same time, the government's goal of achieving carbon neutrality by 2050 is also a major test for the transformation of Japan's energy and industrial sectors. The digitization and green transformation of the economy requires profound reforms.

In the face of a weak economic recovery and a series of structural problems, Kishida put forward the new idea of altering the current focus on capital distribution to achieve a "virtuous cycle of growth and distribution" by improving the labor distribution rate.

Through fiscal policies and adjusting taxes to encourage enterprises to increase wage distribution, Kishida plans to bolster incomes and expand the country's middle class in order to stimulate consumption, combat a shrinking market and sluggish investment, and achieve a virtuous circle of sustained economic growth.

Kishida said that he would come up with economic measures worth trillions of yen, and provide more financial assistance for housing and education to families with children.

He also pledged to raise the wages of nurses, nursing workers and childcare workers, and drive up wages elsewhere in the private sector. He also proposed improving digital infrastructure and correcting Tokyo's unipolar development to narrow the gap between regions.

The Kishida cabinet has set up a new post of minister for economic security and plans to formulate relevant national strategies.

Analysts generally agreed that Japan's cabinet, despite the new faces, is not fundamentally different from the Abe era and is unlikely to completely change its policies. In particular, Japan's ultra-loose monetary policy will continue as deflation drags on.

In addition, a proactive fiscal policy will remain in place to stimulate the economy and promote structural reform.

Analysts generally believed that at present, the virtuous circle of expanding distribution remains just a vision, and realizing this goal involves national tax reform and a profound change in income distribution from enterprises, which cannot be accomplished overnight.

According to local media reports, a rapid growth of Japan's economy is unlikely as the country's international competitiveness has fallen sharply.

Toru Morotomi, a professor of economics at Kyoto University, pointed out that with Japan's current industrial structure, the expansion of consumption can only stimulate the economy in the short term, and finding a way to stimulate medium- and long-term economic growth is key. Kishida has so far revealed no further details on the issue.

With a state of emergency fully lifted in Japan on Friday, the risk of a resurgence in new COVID-19 cases remains, although the number of daily new infections has dropped in recent days.

The first challenge for the new prime minister is how to normalize economic activities and boost economic recovery while strictly implementing prevention measures against COVID-19. Enditem