Business News and Articles
StockNewsLine.com

Japan Government Says GDP to Top 2%

By Aki Ito

(Bloomberg) — Japan's government set an economic growth target of more than 2 percent for the coming decade, a pace that's about four times the central bank's estimate of the nation's current speed limit.

The target was released in a statement after a meeting of Prime Minister Yukio Hatoyama's cabinet in Tokyo today on its long-run economic strategy. The government said it's aiming for 1.4 million additional jobs in the environmental industry, 2.8 million posts in health care, and 560,000 positions in tourism by 2020, along with expanded Asian trade, to bolster growth.

While Deputy Prime Minister Naoto Kan called the target "achievable," economists are skeptical because the economy hasn't averaged an expansion rate of 2 percent or more since the 1980s. David Carbon, head of economic and currency research at DBS Group Holdings Ltd. in Singapore, said the Democratic Party of Japan-led government, which took office in September, would need to embrace deeper changes than it has endorsed so far.

"The demographic headwinds are a drag on Japan's underlying growth, with the population aging and declining," said David Cohen, an economist at Action Economics in Singapore. "To be able to get back to that kind of steady average of 2 percent for the next decade — this is somewhat optimistic."

Not 'Ambitious'

The cabinet plans to announce details on its strategy to achieve the growth target in June, according to the report.

Unadjusted for price changes, so-called nominal growth is targeted at 3 percent a year.

Japan won't achieve that goal unless policy makers can end deflation and "there's uncertainty on how much success they'll have on that front," Cohen said.

The cabinet aims to lift nominal GDP to 650 trillion yen ($7 trillion) by the fiscal year through March 2021, from the 473 trillion yen that it expects for this fiscal year, the report said. Nominal GDP was an annualized 471 trillion yen in the third quarter, the lowest level since 1991.

The government last week unveiled a record budget of 92.3 trillion yen for the fiscal year starting April, and released a stimulus package on Dec. 8 to sustain Japan's recovery from its deepest postwar slump.

"Japan won't fall back into another recession because next year's budget will boost consumer spending and housing investment," Finance Minister Hirohisa Fujii said, speaking to reporters today in Tokyo following the cabinet meeting.

Shrinking Population

The long-term goals are unrealistic given Japan's shrinking population and the government's lack of commitment so far to take steps such as boosting immigration, Carbon said before the release.

"Japan is not a driver of growth — it's just not growing," and will rely on export gains to sustain GDP expansion, said Carbon. He estimated the nation's inflation- adjusted potential GDP growth rate at 1 percent to 1.5 percent.

The Bank of Japan in October said its gauge of potential GDP gains was about 0.5 percent.

Today's framework didn't mention the possibility of any tax reforms. Kan told reporters that it's too early for the cabinet to debate a change in Japan's sales tax. The ruling DPJ has pledged not to raise the tax for at least four years.

To boost the tourism industry, the government will aim to increase the number of foreign visitors to 25 million, from 8.35 million last year. To tap into Asia's "rapid growth," it pledged to create a free trade zone among members of the Asia-Pacific Economic Cooperation group, and make Tokyo's Haneda airport a 24-hour hub for international flights.

Unemployment Target

Hatoyama's cabinet also pledged to bring down the unemployment rate to the 3 percent range in the "medium- term," from November's 5.2 percent. The government estimates there will be more than 100 trillion yen in new demand in the environment, healthcare, and tourism industries by 2020.

Today's framework for economic growth was compiled by a committee chaired by Hatoyama, 60, who has seen his public support eroded after he backtracked on some campaign pledges and concerns about the durability of an economic recovery deepened.

Hatoyama's cabinet had an approval rating of 50 percent in a Dec. 25-27 poll by Nikkei Inc. and TV Tokyo Corp., compared with 75 percent backing in mid-September.

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

Regions : Asia

More articles on this topic: