Economic Survey of Japan 2011

 

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The 11 March 2011 Great East Japan Earthquake was the strongest ever recorded in Japan and triggered the country’s worst disaster of the post-war era. The OECD will be working closely with the Japanese authorities in the coming months and is ready to assist them in any way we can at this difficult time.

While it is still too early to assess the full extent of the damage, the immediate impact will be to reduce output, although this will later be reversed by reconstruction efforts. Deflationary pressures are likely to remain a headwind to growth. The Bank of Japan should thus maintain an accommodative stance until deflation is overcome, paying attention to downside risks.

The priority for Japan is to address the humanitarian and reconstruction needs, along with the nuclear situation. This inevitably creates the need for short-term increases in public spending. Nonetheless, in light of the debt situation, this may need to be funded by shifting expenditures and by short-term increases in revenues, appealing to the Japanese people’s sense of solidarity.

The fiscal situation has reached a critical point. Chronic budget deficits were projected to push up gross public debt to an unprecedented 200% of GDP, and net debt to 115% in 2011. A credible and detailed medium-term consolidation plan that includes spending cuts and tax increases will thus be a top priority, while taking into account the need for reconstruction spending.

Widening gap between expenditure and tax revenue
General account of the central government in trillion yen¹

1. The final budget for FY 1975-2009; the revised budget for FY 2010; and the initial budget for FY 2011.
Source:   Ministry of Finance.

Download underlying data from:

Sustaining economic growth through the New Growth Strategy. Stronger growth is also important to stabilise the debt ratio. The Strategy’s objective of increasing demand in four areas – green innovation, health care, economic integration with Asia and regional development – should rely primarily on regulatory reform rather than on costly fiscal measures.

Reforming the education sector. Educational outcomes, which play a key role in productivity growth, could be improved by greater investment in early childhood education and care. The New Growth Strategy’s plan to integrate childcare and kindergarten would help improve educational quality while allowing cost savings. The tertiary sector should be improved by strengthening competition through increased transparency about quality and by enhancing internationalisation.

Addressing labour market dualism. Although the rising share of non-regular workers has helped firms to increase employment flexibility and cut wage costs, such workers face low pay, less training, precarious jobs and poor social insurance coverage. Reducing labour market dualism requires a comprehensive approach that includes greater social insurance coverage of non-regular workers, better training programmes, preventing discrimination against non-regular workers and lowering effective employment protection for regular workers.

How to obtain this publication

 The complete edition of the Economic Survey of Japan is available from:

 

Additional information

For further information please contact the Japan Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat's report was prepared by Randall S. Jones, Satoshi Urasawa and Byungseo Yoo under the supervision of Vincent Koen. Research assistance was provided by Lutecia Daniel.

www.oecd.org/eco/surveys/japan

 

 

 

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