It is unlikely that another stimulus plan will help the Japanese economy that has been mired in stagnation and deflation for decades. None of the previous spending injections or monetary stimulus programmes has had any significant long-lasting success.
The reality is that the Japan is as much in need of far-reaching restructuring of its economy as are many of the debt-stricken countries of the European Union. Many of Japan’s biggest companies are increasingly uncompetitive and are dependent on exports to turbulent world markets. Many financial institutions are still carrying huge bad-debt burdens, while consumers, scarred by massive property and investment losses, are still keeping their savings under their beds, rather than using them for economic activities.
Ironically, it is only because much of Japanese sovereign debt is held domestically that the country has been shielded from the turmoil on international financial markets. Otherwise, the financial markets could face a crisis that would make Europe pale by comparison. Instead of another bout of spending on white-elephant infrastructure projects or further manipulation of monetary policy, the Japanese economy needs structural reforms. These include cutting close ties between companies that are uncompetitive and government and fiscal reforms that will stimulate domestic investment and boost consumer confidence. Without a return to sustainable, long-term growth, the Japanese economy will remain dependent on unaffordable, ineffective and — perhaps most worrying — politically expedient stimulus programmes.