EDITORIAL | Economy Can Get Back on Track with New Policy Blueprint

On June 21 the Kishida Cabinet approved a new economic policy blueprint for 2024. The "basic policy" reflects the government's hope that Japan is finally on the verge of completely escaping deflation and transitioning the economy to a new stage.  

Based on a growth model, the plan calls for all government policies to ensure wage increases take hold. In turn, that should lead to increased income and productivity. Investment based on public-private collaboration will also need to be bolstered to realize sustainable economic growth. These are the key economic scenarios that the blueprint describes.

Although its orientation is certainly reasonable, questions remain as to how effective the plan will prove to be. 

What the Plan Provides

Many of its core proposals, such as labor market reform and strategic investment in growth areas, have long been considered necessary. There is nothing new there. Rather, the crux of the matter is whether or not we can truly solve these longstanding problems this time around. Hopefully, the Cabinet of Prime Minister Fumio Kishida will go all out to achieve that goal. 

The blueprint notes that the Japanese economy today has a "historic opportunity" to break out of the economic malaise it has been mired in for the last three decades. The economic tides certainly appear to be shifting. 

For one, the Bank of Japan is moving away from its quantitative easing policy. That is in response to the hefty wage increases secured by workers in this year's 2024 spring labor offensive.

Other Factors to Watch

Nevertheless, rising prices are straining household finances. Furthermore, there are concerns that an excessively weak yen will drag down the economy. To transition to a growth-oriented economy, it will be necessary to steadily transform the structure of Japan's economy. 

The government is especially interested in whether or not recent wage increases stick. The plan also clearly promises support for improving the skills of workers of all ages at smaller companies through reskilling (relearning) so that these firms can survive and prosper. In addition, it calls for the Subcontract Act to be strengthened. Appropriate changes would make it easier for smaller companies to reflect their actual labor costs in their transaction prices. 

The simple fact is that people will not feel affluent if wage increases do not keep up with rising prices. We need to redouble our efforts on several fronts, including helping companies to enhance their earning power. 

Getting to Stable Economic Growth

The basic policy blueprint also sets a goal of ensuring stable real economic growth of more than 1% even after the 2030s, when the population decline in Japan will start in earnest. This is crucial to maintaining the sustainability of the economy, government finances, and the social safety net. 

The last basic policy said that nominal GDP growth of around 3% and actual growth of around 2% would be needed. This time, the basic policy is more cautious and realistic. Nonetheless, raising the growth rate even slightly will require the thorough implementation of structural reforms to boost the potential growth rate. In particular, that includes measures to enhance productivity. 

Naturally, this will demand steady policy management. On June 21 Prime Minister Kishida unveiled new countermeasures to address the problem of soaring prices. However, it is important to realize that simply repeating the process of adopting measures to treat the symptoms of trouble in the current economy does nothing to facilitate the transition to the new stage we aim for. 

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(Read the editorial in Japanese.)

Author: Editorial Board, The Sankei Shimbun