Japanese economy not first class, says minister

The Times ^ | 1/19/08 | Leo Lewis in Tokyo

[bruinbirdman]

Amid political meltdown, crashing stock markets and plunging consumer confidence, the Japanese Government has declared that the world’s second-big-gest economy is “no longer first class”.

In a speech to open the new session of Parliament yesterday, Hiroko Ota, the Economic and Fiscal Policy Minister, called for urgent measures to revitalise an economy fast losing competitiveness. Ms Ota vowed to focus on resurrecting Japan’s edge, but admitted that “unfortunately, Japan is no longer in a situation in which the nation is a first-class economy”.

Pointing to drops in gross domestic product per capita, she said that the Government should aim to create a “stable and high-quality society”.

Ms Ota’s proposals – decried as “too vague” by opposition MPs – included establishing a more open economic system with wider job opportunities. Her comments echoed the pledge made by Yasuo Fukuda, the Prime Minister, yesterday that he would stimulate economic growth by pushing technological innovation and globalisation.

Much of the sense of gloom arises from the Government’s mismanagement of a new construction law last summer. The draconian requirement on construction companies to provide more detailed data on antiearthquake measures was introduced without explanation. Worse still, bureaucrats charged with reassessing every building application were not given special training, nor allowed extra staff.

In the space of a few months, the construction bottleneck created an 80 per cent collapse in housing starts and gravely battered the construction industry – a mainstay of the economy.

Although Japan remains in its longest phase of economic expansion since the Second World War, it is facing a series of challenges. The population is ageing fast, many companies are losing ground to aggressive Asian rivals, and the desperately needed economic reforms have ground to a standstill.

Fund managers said Japanese companies had rejected calls to become more shareholder-friendly, “poison pill” strategies have destroyed the M&A market, and Tokyo is not becoming a world-class financial centre.