Takeaway From Japan’s 20-Year Malaise
Thus Japan’s 20-year malaise has been a comedy of policy errors. Listening to people like ex-bank governor Mieno and veteran politician/finance bureaucrat Kaoru Yosano gives a big hint why, i.e., there is a severe lack of critical thinking and a severe allergy to trying something new — particularly as regards restructuring/reorienting Japan’s economy — in Japan’s policy circles. For most of the last 20 years, the Japanese government has spent most of its time just hoping the problem would go away.
The only encouraging progess was made between 2003 and 2007, when the Koizumi Administration cleaned up the banking sector NPLs and attempted to restructure Japan’s economy. Japan’s stock market bottomed in April 2003 at 7,600 and rallied to over 18,000 (137%). Since then, Japan has slipped back into malaise, deflation has returned and trend growth in government debt is accelerating, while stock prices have plummeted 58%.
To get Japan out of its current funk, Mr. Takenaka believes that a one-time massive infusion of fiscal stimulus is needed to eradicate a demand-supply gap still in the tens of trillions of yen range, spending the money on Haneda Airport and other clearly beneficial infrastructure projects, while pushing up growth in Japan’s M2 +CD money supply to 5%~6%–with the DPJ abandoning clearly unattainable election promises for something that actually works.