Basic Economic, Fiscal Policy Approved: Present Vision to Harness Japan’s Fundamental Strength

There is an insufficient sense of crisis regarding the declining international presence of the Japanese economy. The government should rethink its medium- to long-term prospects for accelerating the nation’s growth.

The government has obtained Cabinet approval of the Basic Policy on Economic and Fiscal Management and Reform, also known as the “big-boned policy.” It has set a goal of achieving a surplus in the combined primary balance of the central and local governments in fiscal 2025, marking the first time in three years for this annual policy to stipulate a goal regarding the primary balance.

The policy has noted the view that Japan has a once-in-a-lifetime opportunity to completely escape deflation and realize a growth-oriented economy.

In this year’s shunto spring wage negotiations, the highest average wage hikes in 33 years were realized. For many years, Japanese companies have striven to cut costs, but they are now in the stage of transitioning into a growth-oriented economy by offering attractive products and services.

Given that, it is essential to create an environment that will enable wage increases. Small and midsize companies have been unable to pass increased costs on to sales prices when doing business with large companies. As a result, small and midsize firms currently lack the resources to raise wages.

The government has stressed its intention to promote measures that will help such companies reflect increased costs in their prices, with an eye to revising the Subcontract Law. It is hoped that the government will accelerate efforts to embody the measures.

The decline of the Japanese economy is serious. Japan’s nominal gross domestic product in dollar terms fell behind Germany to fourth place in 2023. Some predict that Japan will be also overtaken by India in 2025 and sink further to fifth place.

Japan must create a medium- to long-term economic vision to utilize its potential to boost growth.

The indication in this year’s big-boned policy of the economic outlook for the 2030s and beyond — when the nation’s population decline is expected to be fully underway — can be a step forward to this end.

To ensure the sustainability of the economy, public finances and social security, the policy points to the need for the real-term GDP growth rate to exceed 1% in a stable manner. The government estimates this would boost nominal GDP from the current level of about ¥600 trillion to about ¥1 quadrillion around 2040.

To achieve this goal, the government has cited such measures as the promotion of decarbonization and digitization of the economy, as well as the expansion of foreign investment and the participation of the elderly and women in the workforce. There is no objection to these measures, but it is undeniable that this policy appears to be broad in an attempt to please everyone and just a collection of existing measures from various ministries and agencies.

It is important to harness the potential of the Japanese economy. Specific measures are called for to encourage Japanese companies to use their internal reserves, which exceed ¥500 trillion, for domestic investment. It is also hoped that measures to strengthen cooperation between companies and universities will be drawn up, and that these efforts will lead to technological innovation.

Regarding the big-boned policy, ministries and agencies have a fixed approach of trying to specify even minor measures, as they believe this will give them an advantage in securing budgets. It is time to come up with a literally “big-boned” vision, including a review of the process for formulating the policy.

(From The Yomiuri Shimbun, June 23, 2024)