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Jostling Japan

19 April 2013 By Christopher Swann

The crowds gathering for the International Monetary Fund’s spring meeting should cut Japan some slack. Prime Minister Shinzo Abe’s economic policies are in for a drubbing at the shindig in Washington, DC. IMF officials have been bemoaning Japan’s “risky” fiscal stimulus while the U.S. Treasury has been grumbling about the weaker yen. But Japan was right to act.

The verbal battering will be an unwelcome change. In the past Japan would often be lauded for being a good team player. A year ago its government offered the IMF a $60 billion credit line to help with the euro crisis – the first nation to stump up.

This time round, however, the country is in danger of being labeled selfish and irresponsible. The United States’ beef is with the decision by Japan’s central bank earlier this month to roughly double its asset purchases to try to hit its 2 percent inflation target by 2015. A U.S. Treasury paper published last week hinted the move was designed to devalue the yen so as to boost exports, hurting foreign businesses.

Such complaints sound rich coming from the United States, where the Federal Reserve has trebled the size of its balance sheet since the 2008 financial crisis to $3.2 trillion. Only last year America was itself on the receiving end of a similar complaint when Brazil accused the country of “beggar-thy-neighbor” policies. Japan can argue with some justification that its policies are focused on overcoming an economic slump and that any currency weakness is a by-product, not the goal itself. Besides, the yen is still worth substantially more in dollar terms than before the financial crisis.

IMF Managing Director Christine Lagarde and her team, meanwhile, are worried about the $117 billion fiscal stimulus package unveiled in January. She has a point. While Abe’s monetary policy has its merits, it lacks longer-term policies to reduce borrowing. At 143 percent of GDP, Japan’s net government debt dwarfs the rich-country average of 78 percent, according to the IMF. But unless Japan can revive growth, it has little hope of lowering that burden.

The IMF and the United States might not like some of the methods. But they cannot dispute that Japan needed to take some drastic measures to pull out of its decades-long malaise.


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