Medium-term outlook for the Japanese economy(2002~2006)
The road to regeneration
November 15, 2001
Nomura Research Institute, Ltd.
Economic Research Department
Nomura Research Institute, Ltd.
Economic Research Department
For the Japanese economy to revive, we think the corporate sector needs to embark on work force rationalization. This does not mean simply cutting wages and employees. It means paying wages that reflect productivity. However, in our view, Japan is 15-20 years behind the UK and the US in this respect.
Work force rationalization in the corporate sector could lead to a higher unemployment rate in the short term. However, if progress is made in deregulation, and if measures are taken to encourage part-timers and women to take up employment, more new jobs could be created over the medium term, leading to an improvement in the labor supply-demand situation. We think the experiences of the UK and the US in the 1980s and 1990s serve as good examples of this possibility.
A major issue is how to alleviate the short-term suffering that will arise from work force rationalization, but delaying fiscal consolidation is not an appropriate way to ease the pain, in our view. We think any delay into the medium term runs the risk of inviting a substantial rise in long-term interest rates, and of Japan entering a period of long-term stagnation and uncertainty from 2010 that would be more serious than anything we have seen thus far.
In our opinion, the right way to ease the pain resulting from work force rationalization is not to create demand through public investment, but to find a way forward by stimulating consumer spending. The propensity to consume has been declining in recent years, but we think this is mainly because people in the 35-49 age group have had to curtail their spending in order to pay off mortgages and pay for their children's education, and because those over 60 are maintaining high savings rates after they retire because they are worried about the future. If these problems can be tackled effectively, then even while companies are aggressively rationalizing their work forces, we think it possible not only to halt the decline in propensity to consume, but also to get it growing again.
If over the next four to five years, Japanese corporations were to rationalize further, the government were to promote deregulation and the creation of a more diverse and flexible labor market, and if an appropriate strategy to stimulate spending were drawn up and implemented based on Japan's particular circumstances, we could see the Japanese economy return to a stable growth track of 2% in about 2010.
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Inquires to: Economic Research Department, Nomura Research Institute
Telephone. 81-3-5255-1800
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Work force rationalization in the corporate sector could lead to a higher unemployment rate in the short term. However, if progress is made in deregulation, and if measures are taken to encourage part-timers and women to take up employment, more new jobs could be created over the medium term, leading to an improvement in the labor supply-demand situation. We think the experiences of the UK and the US in the 1980s and 1990s serve as good examples of this possibility.
A major issue is how to alleviate the short-term suffering that will arise from work force rationalization, but delaying fiscal consolidation is not an appropriate way to ease the pain, in our view. We think any delay into the medium term runs the risk of inviting a substantial rise in long-term interest rates, and of Japan entering a period of long-term stagnation and uncertainty from 2010 that would be more serious than anything we have seen thus far.
In our opinion, the right way to ease the pain resulting from work force rationalization is not to create demand through public investment, but to find a way forward by stimulating consumer spending. The propensity to consume has been declining in recent years, but we think this is mainly because people in the 35-49 age group have had to curtail their spending in order to pay off mortgages and pay for their children's education, and because those over 60 are maintaining high savings rates after they retire because they are worried about the future. If these problems can be tackled effectively, then even while companies are aggressively rationalizing their work forces, we think it possible not only to halt the decline in propensity to consume, but also to get it growing again.
If over the next four to five years, Japanese corporations were to rationalize further, the government were to promote deregulation and the creation of a more diverse and flexible labor market, and if an appropriate strategy to stimulate spending were drawn up and implemented based on Japan's particular circumstances, we could see the Japanese economy return to a stable growth track of 2% in about 2010.
Full text is available in PDF file.
*You need to download the Japanese font from "Asian Font packs for Acrobat Reader" at the web site of Adobe in case character errors take place in PDF files.
Inquires to: Economic Research Department, Nomura Research Institute
Telephone. 81-3-5255-1800
To List of Press Releases
Inquiries:webmaster@nri.co.jp
Copyright(c) 2002 Nomura Research Institute, Ltd. All rights reserved.
No reproduction or republication without written permission.
Copyright(c) 2002 Nomura Research Institute, Ltd. All rights reserved.
No reproduction or republication without written permission.