[talk] What does 'anti- deflation policy' really mean?

Robert Feldman: Chief Economist, Morgan Stanley Securities

Born in 1953, he received his undergraduate degree from Yale University, and his Ph.D. in economics from MIT. He worked at the NY Federal Reserve Bank and the IMF before attaining his present position as chief economist of Morgan Stanley Securities. His publications include "Nihon no Suijyaku" ( roughly translated as “Debilitating Japan”) and “Nihon no Saiki"( roughly translated as "Recovery of Japan”). He won the first place at the All-Asia Research Team Poll conducted by the magazine called Institutional Investor.

Jesper Koll: Chief Economist, Merrill Lynch Japan Securities

Jesper Koll holds a master's degree from the Johns Hopkins University, SAIS and graduated from the Lester B Pearson College of the Pacific in 1980. Before becoming the Chief Economist for Merrill Lynch, his current position, he was a Managing Director of Tiger Management L.L.C. and he was the Chief Economist and Head of Economic and Market Research for J.P. Morgan in Tokyo. Koll joined Merrill Lynch in 1999. He has been serving on several Japanese government advisory councils, including the MITI committee on "Big Bang 2001" Japan' financial system reform." Recently, he was chosen as a member of a task force within the Economic Planning Agency that reassesses the viability of the economic indicators now in use. His major published work includes Towards a New Japanese Golden Age.

Yasuyoshi Masuda: Senior Economist, Fuji Research Institute Corporation

Born in 1958 in Tokyo, he graduated Kyoto University's Faculty of Economics, and was at the Research Bureau of the Fuji Bank and the Fuji Research Institute Corporation (from 1988) as the head of the London office before attaining his current position (in April 2001). In April 2002 he will be appointed as a professor in the Faculty of Economics at Toyo University. His publications include "Tettei Yosoku Nihon Keizai Korekara 10 Nen" (roughly translated as "A Thorough Prediction of the Japanese Economy over the Next Ten Years") and "Kinyu-Kaikoku"( roughly translated as "Opening Japan's Financial System")

The "comprehensive anti-deflation measures" announced by the Japanese government served as a starting point for their discussions.
Mr. Feldman said the biggest point is whether or not the Financial Services Agency will thoroughly implement the special inspection of banks.
Prime Minister Koizumi endorsed strict bank inspections because the agency has been known for lax inspections.
The agency cannot conduct strict inspections because there are many areas that have vague regulations and are therefore left to the agency's discretion.

Due to this fact, banks do not have clear criteria by which they can categorize debtors and they cannot dispose of their bad loans more rapidly.

Mr. Feldman pointed out that objective quantitative criteria such as shareholders' capital over total assets should be established in order to solve these problems.

Mr. Masuda is concerned that the government is now strongly calling for anti-deflationary measures. Initially, the Koizumi cabinet called for sacrifices in enduring the pains caused by deflationary pressures, such as a temporary increase in the number of bankruptcies and/or the unemployment rate, because Japan's economic recovery could not be achieved without this period of suffering. This initial principle of policy now seems to have changed.

He asserts that the government should maintain its principle of policy, which means that as long as many Japanese companies possess a large amount of excessive debt, Japan cannot fundamentally settle the problem of non-performing loans and other related issues.

Mr. Koll stated that the government has not regressed, which is good news for the people, because the Koizumi cabinet has neither increased its fiscal spending nor postponed again the starting date of a pay-off system.
Mr. Koll also maintained that taxation reforms are important to implement real anti-deflationary measures.

He indicated that the cornerstone of cabinet policy is the philosophy of taxation reforms, which are to be made public this June.
Because the current taxation system includes various kinds of tax exemptions and deductions, 70% of Japanese firms do not have to pay taxes, while heavy taxes are levied on the remainder.

The significant points of the philosophy embedded in tax reforms are how it is amended and who is given what kind of incentives.
All the three discussants agreed that the government must brave declining approval ratings and the people should again put pressure on the government to carry out reforms.