Japanese editorial excerpts -3-

Japan Policy & Politics, Jan 6, 2003

TOKYO, Jan. 1 Kyodo

Selected editorial excerpts from the Japanese press:

CHANGE POLICY TO AVERT DEPRESSION (The Daily Yomiuri as translated from the Yomiuri Shimbun)

''It was a horrible era. Corporate failures and moonlight escapes from creditors were daily occurrences, while jobless people with no money for transportation to their hometowns were often seen walking home and passing the night in the open air,'' author Ryotaro Shiba wrote about the Showa Depression in the 1930s.

That era is supposed to be a thing of the distant past. Yet the years of the Showa Depression increasingly are talked about today. This is because the economic policy adopted during that period...is reckoned to be similar to the one being pursued by the administration of Prime Minister Junichiro Koizumi, which is attempting to take further deflationary steps in the current deflation-led recession.

The depression in the early part of the Showa era is being cited as a historic lesson these days as a sense of crisis is spreading over the possibility the Japanese economy may sink into a depression if current problems are left unchecked.

Some also have pointed to a similarity between Japan's current situation and that in the United States during the Great Depression, which formed the background to the Showa Depression.

Even after the stock market crash in October 1929, then U.S. President Herbert Hoover...apparently ignored the real state of the country's crisis.

In the years that followed, Hoover continued to avert his eyes from the reality of a worsening depression, and emphasized the short-term fiscal deficit, even at the time of the change in administrations in 1933.

Meanwhile, Andrew Mellon, secretary of the Treasury under the Hoover administration, advocated a program of liquidating jobs, stocks and real estate...

Put differently, it was a program that held that the destruction of one thing would usher in the creation of something new, a line of economic thinking known as ''creative destruction.'' Yet the program ended up aggravating the depression as it failed to present a vision for the future of what would be created after the destruction.

The slogan championed by Koizumi -- ''without structural reform, there is no economic growth'' -- also fails to clearly show a concrete vision of growth, which he says is supposed to come after reform.

Since the Koizumi cabinet was inaugurated, various economic indicators have continued showing signs of decline under the banner of ''creative destruction.''

Many people are worried about accelerating deflation in an apparently deflation-led recession under the current policy of accelerating the disposal of nonperforming loans held by banks...

Indeed, the prompt disposal of nonperforming loans is desirable when it comes to the bad-loan issue alone. Yet (Financial Services Minister Heizo) Takenaka's plan does not pursue policy integration for overall economic management.

The basics of the plan lie in forcing banks to accelerate the disposal of their nonperforming loans in accordance with U.S.-style accounting standards.

What about fiscal policy? The real meaning of the ''structural reform'' Koizumi champions is vague and indefinite. Yet one thing is clear -- it also means tightening the fiscal policy line.

The catchphrase of the administration of Prime Minister Osachi Hamaguchi, which ushered in the Showa Depression, was the ''readjustment of fiscal affairs.'' This is a policy line similar to the fiscal reconstruction and 30 trillion yen cap on the issuance of new government bonds advocated by Koizumi.

Yet it is obvious Koizumi's tight fiscal policy line has collapsed already...The Koizumi administration managed to cover the tax revenue shortfall in fiscal 2001 with funds diverted from the government's special account for the National Debt Consolidation Fund.

In fiscal 2002, however, the government decided to cover the tax revenue shortfall of 2.5 trillion yen by issuing new government bonds, thus forcing the Koizumi administration in effect to give up its policy of a 30 trillion yen cap on the issuance of new government bonds.

But Koizumi calls it ''policy reinforcement'' rather than policy change. It is apparent to anybody that this line of logic is a laughable sophism.

Putting aside the real meaning of ''structural reform,'' Koizumi should declare clearly that his administration will, for now, put economic recovery before fiscal reconstruction.

On top of this, the Koizumi administration should take action to create demand through large-scale fiscal measures. The supplementary budget for fiscal 2002 and the cabinet-approved budget for fiscal 2003 should be revised drastically, and include a sizable cut in corporate tax.

As to a revenue source for revising the budgets and carrying out tax cuts, the government has no alternative but to issue additional government bonds.

The Bank of Japan needs to take action aimed at realizing a moderate increase in prices by introducing inflation targets. Even Takenaka has referred to the need to adopt inflation targeting.