EDITORIAL: New economic stimulus

What the Japanese economy needs now is not another package of stopgap measures but a set of vigorous policy measures focused on saving and creating jobs that effectively represents an execution of the government's new growth strategy ahead of schedule.

The administration of Prime Minister Naoto Kan and the ruling Democratic Party of Japan have started considering additional measures to stimulate economic growth. The ruling camp should not adopt the same ineffective economic playbook used by the previous government of the Liberal Democratic Party-New Komeito coalition.

The administration should take bold steps to pursue the "third path" of job-rich growth advocated by Kan.

There are growing worries about the economy. The yen has climbed to a 15-year high against the dollar, taking a big bite out of the earnings of export-oriented companies. The stock market is in the tank.

As confidence in economic recovery has started cracking, calls for fresh efforts to stoke growth have emerged among players in financial markets and politicians in both the ruling and opposition camps.

Measures should be taken immediately. Young Japanese are facing great difficulty in finding jobs. The government must step up its efforts to prevent the job situation from getting uglier, starting with expanding job-training programs for unemployed workers and employment subsidies for companies.

But the existing schemes designed to bring forward demand, including the "Eco-Point" program to promote the sales of energy-efficient home electric appliances that expires at year-end, are losing effectiveness and can no longer be expected to support recovery.

The government should now shift its policy emphasis to reenergizing the economy in line with the new strategy, which puts priority on such areas as environment and energy, health and nursing care and tourism.

It is vital to develop a plan to achieve both fiscal rehabilitation and economic growth, as Kan has promised. That means the government needs to secure stable and sufficient revenue sources to finance measures to reinvigorate the economy by creating jobs and domestic demand, instead of expanding its debt financing.

The Kan administration appears to intend to finance immediate measures by tapping the 1.7 trillion yen available from contingency funds to deal with an economic crisis and the surplus from last fiscal year's budget.

But the money is not enough to produce more than a temporary economic stimulus.

It is, however, impossible to increase taxes immediately. The government must find money to finance fresh economic measures mainly through spending adjustments.

The situation requires the Kan administration to make a sweeping review before next fiscal year of the DPJ's manifesto. Developed for last year's Lower House election, it contains costly measures to dole out money to voters, such as new child-care allowances and toll-free highways.

Equally important is for the government to build policy cooperation with the Bank of Japan. Kan is expected to meet with BOJ Governor Masaaki Shirakawa soon. The prime minister should not use the opportunity simply to press the central bank chief for further monetary easing.

At the meeting Kan must win support for his strategy from the BOJ head. That requires him to explain in a straightforward manner not only about near-term policy actions to guide the economy out of the deflationary hole and put it back on a growth path. He also needs to lay out his plans for the tax system, including a hike in the consumption tax rate, and restoring health in state finances.

So far, sales of government bonds have been very strong, even to the extent of making market watchers talk about a bubble.

But continued massive issuance inevitably increases the risk of a collapse of bond prices.

The government would be better advised to build a close relationship with the BOJ if it wants to ensure that the central bank will make a swift response to such an emergency, like increasing drastically its purchases of government bonds.

Only then, will the government's message that it doesn't want the yen to rise rapidly have a strong impact on the market.

--The Asahi Shimbun, Aug. 21