Japan anti-stimulus: Japan's new experiment to boost its economy is an anti-stimulus. Prime Minister Yukio Hatoyama’s economy drive, cutting ¥2.5 trillion ($27 billion) of wasteful stimulus, goes against most other countries’ recent policies. It fulfils an election pledge, and relieves some strain on Japan’s budget deficit and borrowing needs. The previous administration's stimulus hadn’t worked; the anti-stimulus experiment is worth watching.
While fiscal stimulus has been adopted by most of the world’s richer countries — including Japan, until now - its effect has been uneven. In China and Australia, where before the downturn government budgets were in surplus, it has allowed economic growth to resume almost without pausing. In Britain and the US, where budgets were substantially in deficit in 2007-08, its effect has been much less clear. Unemployment, for instance, has continued to rise.
Part of the reason is that governments do not create wealth, so funds for any fiscal stimulus must be borrowed. That's much riskier, economically speaking, if the budget is already in deficit and public debt high before a recession begins.
SO it was in Japan, where public debt has been forecast by the International Monetary Fund to reach 217 per cent of GDP by the end of 2009.
The ¥14.7 trillion supplemental budget of the previous Taro Aso administration, some 4 per cent of GDP, may well have been economically counterproductive. It increased market doubts about the Japanese government’s ability to service its debt, and directed money to rural infrastructure projects that were politically rather than economically desirable.
Hatoyama has so far delivered on his promises of discipline, including bringing in the fiscally conservative Hirohisa Fujii as finance minister. The early data are encouraging: the quarterly Tankan survey jumped by 15 points in September, and unemployment fell in August, when Hatoyama’s election was already certain, rather than rising as it did in the UK and the US.
With its declining population, Japan’s GDP only needs to grow at 2-3 per cent a year for the country to enjoy brisk per capita recovery. If Hatoyama and Fujii manage to deliver that, anti-stimulus could catch on.