|
IMF Deputy Managing Director Shigemitsu Sugisaki's views on the Japanese global outlook. 1.29.2002
1. The Global Outlook
" ... begin by looking at the situation of the world economy today. ... September 11 made an already very difficult global economic situation worse. ... by mid- 2001, become a synchronized downturn across almost all major regions of the world. This synchronicity ... common shocks ... bursting of the IT bubble ... increased international linkages in the financial and corporate sectors ... lack of progress with structural reforms in Japan and the euro area that have prevented these countries from taking up the slack when the long expansion in the United States came to an end."
" ... the Fund has reduced its projection for world growth this year by one percentage point, to 2.4 percent, the lowest since 1993. ... macroeconomic level ... sharp reactions in ... consumer and investor confidence, financial markets, and commodity prices."
" ... stimulative macroeconomic policies implemented in a number of countries ... completion of the inventory correction, and lower energy prices. The key uncertainties relate to the timing of a rebound in confidence, the future course of corporate earnings and investment, and the possibility that still-richly valued equity markets could see a substantial correction."
" ... to sum up ... there remains a risk of a worse outcome. ... The stronger macroeconomic fundamentals in most regions—including lower inflation, generally improved fiscal positions, and more flexible exchange rates— ... should thereby help to keep the global recovery on track."
II. Short-Term Economic Outlook for Japan.
" ... the economic situation, outlook, and policy requirements in Japan. ... capital spending will decline ... Household spending ... remain weak given the severe state of the labor market ... the Fund is projecting a further decline in real GDP of 1 percent, with deflation likely to intensify."
" ... fundamental structural weaknesses in the Japanese economy ... failure to unwind the excess stocks of capital and debt from the bubble years ... slow adjustment to the forces of globalization and technical change, as Japan has lagged in shifting to innovation and productivity—rather than investment and exports —as the engines of growth. The failure to embrace a regulatory regime capable of freeing resource allocation and spurring innovation has also contributed."
III. How To Restart Sustained Growth In Japan?
" ... vigorous economic restructuring could well intensify recessionary pressures in the economy in the short run. ... he critical banking and corporate sector issues that are at the heart of Japan's economic malaise ... "
"Financial sector: No country can grow for an extended period of time without a healthy and profitable banking system. ... coping with loan losses has become more difficult as banks' operating profits have deteriorated ... Decisively addressing the problems in the banking sector is absolutely a top priority."
"Corporate restructuring: Excess leverage in Japan's corporate sector is of course the counterpart of the massive burden of problem bank loans ... A key payoff ... from banks' bad loan disposal is thus not only to restore health to the banking system and allow banks to again perform their intermediation function successfully, but also to encourage restructuring in the real economy, and inevitably, the prompt exit of nonviable companies."
"Fiscal policy: policy efforts to lift Japan's economy out of recessions ... have left the public sector with very high deficits and debts, both in absolute terms and relative to other major industrial countries. Restoring soundness to Japan's public finances will be an immense challenge for policy makers—and one that will take many years to resolve. ... broadening of the personal income tax base, while the further de-earmarking of road-related tax revenues could greatly improve the quality of fiscal spending. A reorientation of the tax system—from direct toward indirect taxation—could also contribute to reducing the distortions from the present over- reliance on a relatively small set of corporate and salaried incomes."
"Monetary policy: ... extraordinary and volatile demand for funds since September. Nevertheless, Japan's consumer price index has now been falling on an annual basis for 2½ years ... the deflation problem ... beyond the one-year horizon, a strong case can be made for aiming for a positive rate of inflation ... to reduce risks that Japan could once again find itself constrained by the zero bound on nominal interest rates."
"Concluding remarks: ... could result in a weak yen in the short term ... A key issue is the regional and multilateral impact that this would have. ... further delays in implementing the difficult structural reforms that I have discussed could prove very costly—raising the risks of financial instability and prolonging the period of economic malaise." ... [more]
4:36:43 PM 
|
