Critics Dismiss Japan’s Latest Stimulus Plan
Japan’s latest and biggest economic stimulus package has been greeted here in much the same way as the government’s previous efforts to ramp up the economy: with a huge Bronx cheer.
Despite some sizable tax cuts and other promising measures, the proposed $166-billion package is being dismissed as too little, too late. And many Japanese have become inured to ever-larger spending plans that aren’t fully implemented and never manage to turn around Japan’s deeply troubled economy.
“This package still leaves a lot to be desired,” said Russell Jones, chief economist with Lehman Bros. Japan.
Japan’s third supplementary budget and second stimulus package in six months, tobe officially unveiled Monday, calls for a seemingly impressive $58.3 billion in corporate and other tax cuts, $41.7 billion in loans and loan guarantees and $66 billion in public works, vouchers and other measures.
But Japan’s benchmark Nikkei stock average fell sharply after the outline was released, closing at 14,076.06, down 352.96 points. And the yen dropped 2% against the dollar in Tokyo on Thursday to trade at 123.87, the currency’s lowest level since Oct. 7.
“The markets have realized you can’t expect much from these economic packages,” said Junji Ohta, an analyst with the Okasan Research Institute, who criticized the latest plan’s delayed tax cuts and lack of imaginative spending priorities. “This package scored only 20 points on a scale of 100.”
Japan has been under growing pressure at home and abroad to fix its economic ills, both for the sake of its long-suffering citizens and the shaky global financial markets. This plan is designed to restore growth in the world’s second-largest economy through massive injections of government spending.
But some analysts said that despite its size, the package is too small to counter the dismal economic forces at work. Lehman’s Jones said overcapacity in the Japanese economy has risen to at least 4% and possibly as much as 6% of gross national product, given the banking crisis, weak consumer confidence and tepid corporate investment.
This plan, however, represents just 1.5% of GNP if new spending alone is counted, which still leaves a huge gap. “You have to consider the size of the package in the context of the size of the problem,” he said.
Others complained about the lack of details on key tax-cut issues. Yasunari Ueno, chief economist at Fuji Securities Co., said Japanese politicians couldn’t agree on how tax cuts will be allocated between the central and local governments.
“They haven’t decided who should be burdened and by what percentage, but they just shoved the measure in the package anyway,” he said.
Critics also expressed concern that $5.8 billion earmarked for a controversial shopping coupon giveaway plan for children younger than 15 and senior citizens older than 65 could become a substitute for more meaningful tax reform.
“This [coupon] idea will make people realize how desperate Japan is and might make people feel even more pathetic,” said Kazutaka Kirishima, senior economist at Sumitomo Research Institute.
Also lacking were details on the incentives that would be offered to spur the housing market, a huge potential engine of economic growth, analysts said. These could include moves to make mortgage interest deductible, as it is in the United States, and to raise housing-related tax credits.
But some analysts said the market was overreacting with its dour assessment, adding that this latest plan offers several good features. It cuts top marginal tax rates to 50% from 65% and corporate rates to 46% from 40%, said Michael Naldrett, economist with Dresdner Kleinwort Benson Tokyo. It also promises to put some real money into the economy.
“It’s important not to criticize this too much,” he said.
One thing optimistic and pessimistic analysts seemed to agree on, however: Japanese policymakers could use a few lessons in presentation skills. Rather than first beat down the public’s expectations and then come through with a plan that gives markets more than they expect, Japan often seems to do just the opposite.
“Someone has got to teach the Japanese government how to do public relations,” said Garry Evans, strategist with HSBC Securities.
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Etsuko Kawase in the Times’ Tokyo bureau contributed to this report.
