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"Overcoming deflation is a very significant challenge. I want to bring Japan back onto a sustainable growth path and to end deflation"
- Naoto Kan speaking in the Parliament, February 2010
In ancient Japan, the country was safeguarded by intimidating samurais wielding swords. Today, Naoto Kan, the newly elected Japanese Finance Minister, must protect Japan in a different way; this time from spiraling debt that threatens the economy.
Kan, who is also the deputy prime minister, has to walk the tightrope between stimulating an economy dogged by recessionary blues and trickling demand, and keeping in check a bloating debt that is flirting dangerously close to 200% of the GDP. Japan’s debt totaled $9.7 trillion at the end of December 2009, although there is some consolation in the fact that most of the country’s outstanding government debt, around 90%, is the burden of domestic investors.
These debt worries are compounded by plummeting tax revenues, as Japan’s export dependent economy strives to maintain its equilibrium in the wake of subdued global demand. Japan’s tax receipts stood at $485 billion in December 2009, which amounts to less than half of the government’s recently cleared $1 trillion budget, a new record.
Until now, worries were assuaged by the reassuring and experienced hand of Hirohisa Fujii, Kan’s predecessor. But fighting Japan’s economic woes had cost Fujii his health, causing him to resign. Kan, 14 years younger and known for his sharp tongue and short fuse, is described by the Financial Times as “the most daring choice.” Kan may have little fiscal experience compared to Fujii, as his critics point out, but he is already displaying progressive thinking.
In fact, Kan turned heads on January 6th, the day he was appointed, saying that he favored a weaker yen. Since then, Kan’s approaches, which are very different from Fujii’s, have made headlines. Apart from championing a less aggressive yen to boost exports, Kan encourages fiscal stimulus measures and is a vociferous proponent of stimulating demand and creating jobs. He seems to have an ally in Japan’s Prime Minister Yukio Hatoyama, who hopes to spark consumer spending with a new budget that is weighted more towards welfare and education than public projects.
Kan has shaken up the political scene before. Over 10 years ago, in his role as health minister, Kan created a scandal when he pressured bureaucrats to reveal documents proving the government failed to prevent blood transfusions tainted with HIV. Today, Kan, a trained lawyer who is known for not sugar-coating his words, will have to use all his intellectual and persuasive powers to pull Japan out of its financial bog. Known for his strident stands during parliament deliberations, Kan has emphasized his desire to make the traditionally opaque workings of the ministry more transparent.
Kan’s first test has been to convince the Japanese parliament, which has been tilted toward restraint, to pass a budget that involves more spending. He scored his first match point when the budget was passed, which Kan expects will create 200,000 new jobs. With the new spending action plan, Kan even estimates GDP to edge up by 0.7% in the next one year. For Kan, it was more than a personal triumph when the lower-house approved the new budget; in his view, it was a victory for Japan.
The Organization for Economic Cooperation and Development (OECD) has warned that public debt will in fact touch 200% of the country’s GDP by 2011 if stimulus spending is increased. Although Kan is one of the few finance ministers who has treated debt as a priority, he now reasons that stimulus spending is needed to spark Japan’s economic engine to life. Commenting to Japanese news channel NHK , Kan revealed, “it is too early to take steps towards fiscal belt-tightening in the immediate future.”
But for Kan, a man who in his spare time loves to play Go, an ancient Japanese game of skill and tactics, arriving at a solution is part of the sport. Traditional measures have not worked for Japan and Kan brings fresh thinking and dynamic strategies to the table. Although splinters of doubt linger in a people who have been known to cling to conventional methods, Hatoyama seems to be confident of Kan’s abilities, “I believe deputy Prime Minister Kan will manage the job well.”
Image Credit: Kenji-Baptiste Oikawa under a Creative Commons license
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