Blog Japan’s economy must stand on its own

Japan’s economy must stand on its own
Japan’s economy has responded well to Prime Minister Shinzo Abe’s reform efforts, despite some internal resistance and a weak global environment, according to Tomomi Inada, Japan’s new Defense Minister, who spoke at the AIC in her previous capacity as Chairperson of the Policy Research Council of the ruling Liberal Democratic Party.

Japan’s economy actually shrank in the last quarter of 2015, hurt in part by slow exports, and many analysts believe the contraction continued in the first quarter of 2016. The impact from weakness in China and other trading partners underscores the need for Japan to accelerate structural reforms, Inada said at the AIC 2016 on April 8.   

“The Japanese economy is, of course, linked to the global economy,” Inada said. “But whatever happens in the global economy, the Japanese economy should be able to stand on its own,” she added.

Inada pointed to several economic indicators that had improved during the first three years of Abenomics, including record high corporate profits and a 19-year high by the Nikkei 225 stock average.

Japan’s working age population peaked in 1995, and expanding the workforce is an important goal. Notably, new workers are needed to care for elders, reducing the need for current workers to quit their jobs.

Adding more women and foreigners to the workforce, and equalizing their pay, are important but difficult reforms. Currently, foreigners make up only 1 percent of the workforce.

“I am determined to change the current employment system,” Inada said. “But people do get nervous when they hear ‘foreign workers’.”

Japan also needs to reduce its national debt, which is currently twice its GDP, Inada said. To help pay down the debt, the government had hoped to raise the consumption tax rate from 8 percent to 10 percent next year, though that’s likely to counteract efforts to boost consumption.

“The last time we increased it by 3 percent (April 2014), consumption plunged and it hasn’t really come back,” Inada said. “If we see another crisis like the (2008 global financial crisis) , then we might have to delay the increase.”

As in economic matters, Japan needs to be more self-reliant in defense, Inada said, a reference to the Abe administration’s controversial proposals to expand the country’s military capability - Japan’s constitution permits only self-defense.

Inada asserted that Japan is a “peace-loving” nation, but should be able to do more than rely on the United States for protection.

As she finished her presentation, Inada touched on her role in leading the “Cool Japan” initiative to promote the country to tourists and foreign consumers. She noted that she was wearing designer Japanese eyeglasses – even though her eyesight is “perfect” – as well as traditional Japanese fishnet stockings.

“I’m doing everything I can to boost and promote Japan,” Inada said.

Watch the full replay of Tomomi Inada’s keynote address