A brief look at the possible economic impacts of the DPJ victory

It appears that the DPJ has not promised much change in economic policy. In analysis leading up to the election the NY Times stated that

"The main opposition Democratic Party, which polls indicate will end half a century of nearly uninterrupted rule by the Liberal Democrats, has not offered much more than piecemeal remedies to Japan’s biggest problems. Neither party has proposed politically difficult solutions, like allowing in more immigrants — a no-no in racially homogenous Japan — or raising taxes to help reduce the big public debt burden.

“Both parties are ducking the hard issues,” said Takatoshi Ito, a professor of economic policy at the University of Tokyo. “What they do present is a Band-Aid for these problems, not the real surgery that Japan needs.”

A Wikipedia analysis of the DPJ's economic policy proposals lists the following:

-a restructuring of civil service (meaning layoffs and pay-cuts)
-a monthly allowance for families with children (at 26000 yen per child)
-a cut in the petrol tax; income support for farmers
-free tuition for public high schools
-the banning of temporary work in manufacturing
-raising the minimum wage to 1000 yen
-no increase in sales tax for the next four years

I think that most of these ideas have merit, with the exception of perhaps the farm income support. Agriculture is a sector in Japan that has been heavily subsidized in the past, so additional support is not exactly revolutionary.

Recently, Andy Xie expressed a rather negative opinion regarding Japan's leadership:

“Japan is an enigma. It has been locked in a vicious cycle of economic decline with a strong yen and deflation. Most Japanese people have a strong yen psychology. Politicians and central bank leaders reflect this popular sentiment, which is based on an aging population. Wealth is concentrated among voting pensioners for whom a strong yen and deflation theoretically improve their purchasing power. But I think various theories that explain Japan’s behavior are not good enough. The best explanation is that Japan is run by incompetents, and some are downright stupid. They have locked Japan in an icebox and refuse to come out.”

Strong words. If Japanese citizens are in fact holding out for greater purchasing power due to deflationary psychology, the question is what are the pensioners expecting to spend their savings on?

I think a significant policy that Japan implemented over the last decade has been outsourcing production to China, which provides the labor pool that Japan lacked. This benefited Japanese multinationals, but not domestic workers.

I think, though that this could backfire for Japan as quality will be harder to maintain. The main asset that Japanese companies have now is their reputation for quality goods. If that were to slip, the consequences would be serious.