Financial crisis in Japan

Financial Times published an analysis regarding the economic situation in Japan recently.

Financial Times: Japanese debt: Still climbing (maybe members only)

It is a so long and complicated article that it is difficult for me to understand it completely. But I frequently hear about similar opinions. And I agree with this article on the outline.

Japan has kept a huge amount of debt for decades. Financial problem in Japan is very serious. In addition, the population of Japan is decreasing and aged persons are rapidly increasing. It means two things. First, Japanese government cannot expect the growth of taxable income. Second, the rise of expenditure for social security is inevitable. Of course, both of them are disadvantageous to Japan.

What should Japan do against these desperate conditions? Shinzo Abe, Prime Minister of Japan, began to carry out his own solution, named Abenomics. It includes three major policies, a flexible fiscal policy, more aggressive monetary easing from the Bank of Japan, and various structural reforms to boost competitiveness.

As a result, Japan Yen was weakened dramatically. It was beneficial to some companies which depends on exportation of the products. Stock prices rose. At least, the first policy of Abenomics resulted successful.

However, he cannot find the next move. The decisive, and the most difficult matter is to show the way to economic growth. Abe declared the relaxation of several official regulations interfering competition, but has never accomplished. Continuous growth of economy is a great challenge for every country. I do not think Japan will grab the answer easily.

During struggling the stasis in the economy, Japan will face to the crisis of hyperinflation. The Abenomics aims 2% inflation in a year as a goal. But I am not sure the government and the Bank of Japan can handle this rate. Once the switch of inflation goes, the Japan bond will fall all at sudden. The author of this article refers to the words "the axle on a car with no brakes" which is commonly used by some economists.

Japan will raise the rate of consumption tax from 5% to 8% the next month. I believe it is correct for us. Normalization of financial in Japanese government, or at least the attempt for it, is essential for sustainability.

I am fearful about the future of Japan. All I can do is to try to improve my own creativity.