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TOKYO : Japan must shift its policy focus away from crisis-mode stimulus towards achieving private sector-driven economic growth, a government panel said on Tuesday in the wake of the central bank’s decision to end eight years of negative interest rates.
In a proposal to the government’s top economic council, the panel urged policy changes in the face of rising domestic prices and interest rates, as well as wage growth at a 30-year high as companies face job shortages.
“Japan’s economic and fiscal policies must shift away from the crisis-mode approach that worked when prices barely moved, to one that responds to rising prices and strengthening growth,” the panel said in the report, which was submitted to the council’s meeting on Tuesday.
“We need to achieve a domestic demand-driven growth and a sustainable fiscal structure,” the report said, urging Japan to wean itself off decades of heavy fiscal and monetary support that had underpinned the fragile economy.
The recommendations by the panel and private members lay the groundwork for setting the government’s long-term economic policies and their priorities.
Private-sector members of the government council also called for continued cooperation between the government and the Bank of Japan to ensure wages keep rising next year and beyond.
“With the BOJ having ended negative rates, monetary policy has entered a new stage,” the private-sector members said in their joint proposal. “We’re seeing an opportunity open up to achieve economic growth driven by private demand.”
The council’s meeting also debated the impact of Japan’s rapidly ageing population on long-term economic growth.
Under a baseline scenario that assumes the economy will keep growing around the current pace, Japan will see its per-capita gross domestic product (GDP) rise just 6.2 per cent in 2060, the Cabinet Office’s estimates showed.
While that will be up from 4.1 per cent in 2020, it will be well below 9.6 per cent for the United States, 8.1 per cent for Germany, 7.6 per cent for Britain and 7.1 per cent for France in 2060, the estimates showed.
Japan has one of the world’s fastest-ageing populations that is intensifying labour shortages and leading to a shrinking domestic market. The ratio of those aged 65 or higher is expected to rise to 37.9 per cent in 2060 from 28.6 per cent in 2020, the estimates showed.
Japan’s economy grew 1.0 per cent in 2022, lower than Germany’s 1.8 per cent and 1.9 per cent in the United States for the same year.
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