The Yomiuri ShimbunWon’t this situation cause the risk of an economic slowdown? Now is the time for careful discernment.

The government has revised down its assessment of the economy for the first time in three years in its monthly economic report for March.

It has changed its statement assessing the overall economy from “mildly recovering” to “mildly recovering although weakness is seen recently in exports and some parts of production.”

This seems to have stemmed mainly from the economic slowdown in China, which is a major trading partner of Japan. Exports of electronic parts and other products are sluggish, thus putting a brake on companies’ production.

If this slowdown in exports continues, it could cool corporate capital investment. The government states it is highly likely that the economic expansion period marked in January is the longest in postwar history. Yet doubt about that view is growing stronger. The government and the Bank of Japan should levelheadedly analyze the economic circumstances while avoiding prejudgment.

Uncertainty over the situation abroad, such as the trade friction between the United States and China and issues related to Britain’s exit from the European Union, could also weigh on the economy.

BOJ Gov. Haruhiko Kuroda has presented a view that the Chinese and European economies will improve in the latter half of this year. In contrast, no optimism is warranted about the future of the U.S. economy due to the nation’s political turmoil. It is necessary to pay the utmost attention to changes in the world economy.

The key is how to vitalize domestic demand.

Consumer spending, which accounts for the greater part of Japan’s gross domestic product, lacks strength. Substantial pay raises were realized in such industries as logistics and retail, which are suffering from serious labor shortages, but it is a cause of anxiety that moves to raise wages are slow in the manufacturing industry in particular.

BOJ must exercise wisdom

Companies with ample financial resources are steadily increasing wages. They also keep making future-oriented investments to increase productivity. The government backs the creation of new industries through deregulation and priority budgetary allocation. It is hoped the government and the private sector will coordinate with each other to shore up the economy.

The consumption tax rate is scheduled to undergo a hike in October. In order to ease consequent financial burdens on households, the government is planning to take such measures as introducing a reduced tax rate system and a reward-point program. It is necessary to implement these measures smoothly to minimize possible adverse impacts on consumer spending.

What is problematic is that policy space has become narrower both for the government and the BOJ. In particular, the BOJ seems to have hit a brick wall.

If economic deterioration becomes evident, the BOJ cannot help but consider additional monetary easing. It is important to prepare carefully for this situation before it is too late.

Among expected measures is increasing its purchase of long-term Japanese government bonds and exchange-traded funds. But the effects of extending already ongoing easing measures seem to be limited. It is imperative to consider every possible option.

Regional financial institutions that support regional economies are suffering conspicuously from a decline in earnings, affected by the negative interest rate policy and other factors. Additional monetary easing could aggravate this situation. It is hoped the BOJ will exercise wisdom in dealing with the current situation while fully considering the possible negative impacts.

(From The Yomiuri Shimbun, March 21, 2019)Speech

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