December Monthly: LDP slush fund suspicion is structural corruption taking advantage of Abenomics

 

December Monthly: LDP slush fund suspicion is structural corruption taking advantage of Abenomics

December 25, 2023

It's time to break away from the suspicions of slush funds and the corrupt nature of the Liberal Democratic Party.

This morning's Mainichi editorial, with its subheading title, presents a very persuasive argument, so I would like to introduce it at the beginning of this December monthly issue.

 

The Liberal Democratic Party's "politics and money scandal" is widely and deeply intertwined with the party's largest Abe and Abenomics, so it cannot help but be seen as a fairly serious problem, and the Kishida administration is likely to be forced to resign and the Diet could be dissolved early next year.  

 

“Suspicions that the Liberal Democratic Party's largest faction, the Abe faction, has been systematically building slush funds for many years in violation of the Political Funds Control Act are hitting the Fumio Kishida administration directly.  While the people are suffering from soaring prices, political Distrust is at an all-time high. Drastic political reform, including eliminating factions, is urgently needed.

 

The Tokyo District Public Prosecutors Office's Special Investigation Department searched the offices of the Abe and Nikai factions and requested voluntary interviews with former Chief Cabinet Secretary Hirokazu Matsuno and others.

 

Prime Minister Kishida has been positive in his words, saying that he will "reform the LDP's constitution," "act as a fireball," and "take the lead in efforts" to restore public trust.

 

However, in reality, he simply carried out a “cutting of the Abe faction'' by replacing cabinet ministers and party leaders who were in the midst of suspicion. From start to finish, the government has been only trying to assess the progress of the investigation, and has not shown any concrete measures.

 

Urgent need to review the monkey law

 

Instead of waiting for an investigation, the party should take the initiative in self-cleaning. The first step is to clarify the entire situation. The party will set a deadline and instruct the party to conduct an investigation, publicize the results, hold those involved accountable, and take measures to prevent recurrence. We must start this cycle as soon as possible.

 

The purpose of the Political Funds Control Act is to ensure that political activities are conducted under the "constant monitoring and criticism of the people." It has been amended repeatedly each time a scandal related to "politics and money" occurs. Still, there are many loopholes, which are referred to as the "colander method."

 

In response to this incident, it is necessary to fully disclose the “input'' and “outflow'' of political funds to ensure transparency, and to revise the system to strengthen penalties. However, simply revising the regulatory laws will not be enough to overcome the current situation where political ethics seem to have fallen through the cracks.

 

The Political Reform Outline compiled by the Liberal Democratic Party in 1989 in response to the Recruit Incident contains a number of hints for the party's rebirth. These include self-restraint from parties, clarification of income and expenditure, consideration of political party laws, electoral system reform, revitalization of parliamentary deliberations, and determination to eliminate and eliminate the harmful effects of factions. Based on the outline, political reforms were carried out in the Heisei era, and a single-seat district system and political party subsidy system were introduced.

 

Among these, the political party subsidy system is an alternative measure that prohibits donations from companies and organizations, and is a system that subsidizes political parties by investing 250 yen per citizen, or approximately 32 billion yen per year, in taxes.

 

There was an idea to ban donations from companies and organizations that could lead to inducement of interests, and to make politics centered on individual donations. Corporate and group donations to individual politicians have been banned, but donations to political parties and political party branches have been preserved, with virtually no pledges made.

 

Furthermore, since donations from political parties to individual politicians are permitted, the ban is not effective. It really is a "loophole".

 

In addition to political party grants, politicians are “double-picking'' corporate and organizational donations received through political parties and branches, and are also receiving income from party tickets. We should go back to the basics of reform and consider a complete ban on donations from corporations and organizations

.

Dissolution of factions that cause great harm

 

Former Minister of Internal Affairs and Communications Junji Suzuki admitted that although he received repatriation of party ticket revenue from Abe's faction, he did not record it in his political funds balance report, saying, “In this world, repatriation was recognized as a culture.''  We must break away from our corrupt constitution.

 

Even if we restrict the inflow of political funds, if we do not restrict the outflow, we may start looking for new loopholes. It is important to discuss how to realize”politics that does not involve money.''

 

"Politics and money" is an issue that concerns not only the Liberal Democratic Party but also Komeito and opposition parties. We should not repeat the history of politicians making small-scale amendments through legislation by members of the Diet. A third-party organization including experts should be created and a thorough discussion should be held.

 

There is also a need to reconsider the nature of the factions themselves. In recent years, factions have lost their function as policy groups, and have become organizations that are used to make personnel changes in the order of factions, such as when reshuffling the cabinet. The negative effects are significant and should be eliminated.

 

There is also a need to put some kind of limit on the "hereditary inheritance" of politicians so that more talented people can participate in the political field.

 

Politics cannot exist without trust. If things continue as they are, the gap between Japan and the public will only widen, creating a dangerous situation for politics. The prime minister must demonstrate leadership and thoroughly address the issue of politics and money. ”

 

 

Daihatsu fraud: Toyota bears heavy responsibility

 

On the one hand, there is a political scandal involving the Abe faction of the Liberal Democratic Party's largest faction, which is shaken by scandals involving "politics and money."   

 

On the other hand, the Bank of Japan is busy manifesting a "surplus of money" by continuing indefinitely the bold monetary easing that is the first arrow of Abenomics.

 

In this way, under Abenomics, Toyota, a major export company that has been prospering from low interest rates and a weak yen for many years, and has had most of its consumption tax refunded through export refunds, and its subsidiary Daihatsu are facing fraud problems.

 

Moreover, the memory of the fraud scandal at Mitsubishi Motors (2016), which had already fallen on Toyota hegemony, is not that long ago.

 

This kind of fraud under the Toyota Group, which is a major export company such as Daihatsu and Mitsubishi Motors, should be seen as a trinity of `structural corruption'' by the Liberal Democratic Party government, the Bank of Japan, and large export companies that took advantage of Abenomics.

 

In any case, I would like to introduce the December 22nd Asahi editorial with the above persuasive subheading below：

 

“This is an unprecedented situation in which certification tests that support automobile safety were ignored, and shipments of all vehicle models had to be halted.  Daihatsu Motor Corporation's fraud lies not only with the responsibility of its management, which is said to have caused the spread of the disease, parent company Toyota Motor Corporation's group management style must also be seriously questioned.

 

As a result of an investigation by a third-party committee consisting of outside lawyers, the fraud has expanded to a total of 64 car models, up from six car models as of this spring. Fraud was found in 25 new tests, including data fabrication and falsification, and modification and adjustment of vehicles and experimental equipment. Many of the cases are extremely egregious, including cheating in tests to confirm airbag operation, and are related to the ability to protect drivers and passengers in the event of an emergency.

 

Daihatsu says it has confirmed safety through re-testing, but they must ensure the safety of their customers. It is then necessary to investigate the cause of the fraud and take measures to prevent it from happening again.

 

According to the investigation report, the fraud began over 30 years ago. The number of cases has increased since 2014 and continued into this year. The automobile industry became a big problem in 2016 when it was discovered that Mitsubishi Motors had committed fraud in fuel efficiency tests. It is surprising that serious fraud continued to spread. The Ministry of Land, Infrastructure, Transport and Tourism should take strict action.

 

The third-party committee cited the reason behind the fraud as the management team's efforts to shorten the development period for cars in order to increase profits. The analysis shows that the overcrowded and rigid development schedule concentrated on the department in charge of certification testing, leading to fraudulent implementation. “It is not the frontline employees who are to blame, but the executives,'' he concluded.

 

It was also pointed out that while Daihatsu was working to shorten the development period, it had significantly reduced the number of personnel in the department responsible for certification testing. Why couldn't they have foreseen that something would go wrong? It goes without saying that management should clarify their responsibilities.

 

The increase in fraud since 2014 coincides with Toyota expanding its production outsourcing to Daihatsu. At a joint press conference with Daihatsu, Toyota Vice President Hiroki Nakajima said, “We failed to recognize that we may have increased the burden on (Daihatsu's) development and certification sites.  Toyota is regretting this. “  The fraud is also related to Toyota's business strategy, and Toyota bears a heavy responsibility.

 

However, Toyota's top executives, President Tsuneharu Sato and Chairman Akio Toyoda, did not show up.  Following the disclosure of Daihatsu's fraud in the spring of this year, the group should have announced that it would work to investigate the cause and restore trust. Your determination can only be conveyed to worried buyers by apologizing in your own words and vowing to eradicate fraud. We should recognize that. ”

 

 

Bank of Japan carefully talks in preparation for exit (Nikkei editorial dated 21st)

 

By the way, the monetary policy decision on December 19th, which attracted attention as the last Bank of Japan meeting of the year, must be said to be a regrettable outcome that highlights the discretion and arbitrariness of the Bank of Japan.

 

What was particularly problematic was that the Liberal Democratic Party, led by the largest faction, the Abe faction, was in the middle of a scandal involving politics and money, and the first arrow (bold monetary easing) of Abenomics' three arrows, Mr. Goto, the Minister in charge of economic revitalization, went out of his way to attend the last meeting of the year at the Bank of Japan, which continues to commit itself to the bold monetary easing even under high inflation and has become a hotbed for a surplus of excessive money.

 

The result of the Bank of Japan meeting was that, while the general public and consumers are still facing a “cost of living crisis,'' the Bank of Japan's final meeting in 2023 maintained the status quo and continue monetary easing.  Not only did the Bank decide to do so, but it also decided to maintain the status quo, saying, “If necessary, we will not hesitate to take additional monetary easing measures.''

 

With this, one could even say that it has become clear that the Ueda Bank of Japan is no longer a watchdog for the people to keep prices and currency stable, but merely a watchdog for the government.  The late Prime Minister Abe was not afraid to assert that the Bank of Japan is a subsidiary of the government.  For this reason, the Kishida administration, which has no choice but to view it as nothing more than a third-generation version of Abenomics, may have no problem with continuing Abenomics.

 

In any case, I have to say that the Nikkei editorial's statement, “The Bank of Japan is preparing for the exit and conducting careful dialogue,'' rings hollow.

 

What is at stake now is not only the revision of the Political Funds Control Act, but also whether the Bank of Japan, which only promotes a surplus of money, can ensure its independence and neutrality from the government amid scandals involving politics and money.  However, I believe this is a re-amendment of the Bank of Japan Act to ensure that Japan's central bank strives to stabilize prices and currency.

 

In particular, arbitrary participation in Bank of Japan meetings by government officials such as Minister in charge of Economic Revitalization Goto should be clearly prohibited, and the Act should be revised accordingly again.

 

Furthermore, the government and the Bank of Japan's assertion that a virtuous cycle of wages and prices is necessary is incorrect. The possibility of a vicious cycle between wages and prices is common knowledge in economics. A theoretical model of such a virtuous cycle should not exist, and there is no way that Bank of Japan Governor Ueda, former dean of the Faculty of Economics at the University of Tokyo, is not aware of it..

 

In any case, the following is the Nikkei editorial dated the 21st, and although it has a point, I have to say that it lacks persuasiveness.

 

“The Bank of Japan has entered an important phase in its efforts to normalize its monetary easing measures and determine whether a virtuous cycle of wages and prices will take root.

The Bank's analytical skills and ability to communicate with the market will be put to the test in earnest.

 

At the monetary policy meeting that ended on the 19th, it was decided to maintain easing measures. Governor Kazuo Ueda said at a press conference that “we still need to see whether the virtuous cycle will strengthen'' in order to achieve the goal of increasing prices with wage increases.

 

On the other hand, corporate profits continue to improve, and there are prospects for continued large wage increases in labor-management negotiations next spring. Mr. Ueda also stated, ” the probability that the forecast will come true continues to increase little by little,'' and expressed his intention to “see more information.''

 

Personal consumption remains stagnant as prices continue to rise. Overseas, there are growing expectations that the US Federal Reserve (FRB) will cut interest rates early, and there is a sense of uncertainty about the future of the US economy and the yen exchange rate.

 

The problem is how to assess the sustainability of price increases rooted in aggressive wage increases and domestic demand, and how to share this with the market.

 

Mr. Ueda stated in the Diet on the 7th, “It will become even more challenging from the end of the year to next year,'' raising speculation that the market will normalize.  At the press conference, he denied any political intentions, but reiterated the difficulty of dialogue.

 

In the stock market on the 20th, the Nikkei Stock Average briefly exceeded its high after the bubble burst. Amid rising U.S. stock prices, the Bank of Japan's concerns about early normalization have eased, and the yen's appreciation has subsided, spurring buying momentum. As we approach the exit, we need to pay close attention to movements in stock prices and the yen exchange rate.

 

In order to maximize the vitality of the private sector, it is essential to shift to an interest rate system that takes advantage of market functions so that money flows to where it is needed under appropriate conditions in accordance with the actual economic situation.

 

However, many market participants have never experienced a world with interest rates. As this is a historic shift, the market is likely to become unstable.

 

The Bank of Japan should analyze the current state of the economy and prices more closely than ever before, and carefully look for opportunities to change policy. After that, they should engage in dialogue with the market with the utmost care so as not to cause unnecessary confusion when exiting. ”

 

 

Why does the Bank of Japan, Ueda, just pay lip service to the challenge?

 

Mr. Robin Brooks, current chief economist at IIF and former chief foreign exchange strategist at Goldman, has the following comments regarding the Bank of Japan, which remains unwilling to lift negative policy interest rates even under the world wide inflation situation: With a chart of "Markets take note of everything exciting. The sudden end of the Bank of Japan Yield Curve Control (YCC) is due to Japan's debt burden (horizontal) causing yields to rise sharply (vertically)" , it will be interesting. This is why a sudden end of YCC cannot happen. Japan has no choice but to cap yields...'', he tweeted on December 23rd, which caught my interest.

 

Bank of Japan Ueda only pays lip service and does not take on challenges. Given that the Bank of Japan is nothing more than a watchdog of the government, our expectations and wishes for the Bank of Japan as the watchdog of prices and currency may be in vain in the first place.

 

In order to revive Japan, it may be more unreasonable to expect the Bank of Japan to reduce the inflation tax and support to permanently lower the consumption tax rate by 5% in order to abolish the consumption tax.

 

However, it may not be impossible to see the current government be replaced by a new government that will push for the abolition of the consumption tax and curbs on inflation.

 

Moreover, by early next year or early 2024, on the one hand, Abenomics will run out of control and inflation and asset bubbles will amplify, causing the "surplus of money" to become increasingly uncontrollable, and on the other hand, the Liberal Democratic Party's  scandals in “Politics and Money'' become more serious, the Kishida administration is forced to resign en masse, and it appears that a new administration will replace Abenomics by abolishing the consumption tax, normalizing monetary policy, and abolishing arbitrary industrial policies. This could mean that a “Great Revival of Japan'' does indeed occur not so distant future.  We will discuss these again at the end.

 

 

Government budget plan: facing debt difficulties

 

The December 23rd Asahi editorial with the subheading title is quite persuasive.  However, the biggest problem lies in the unchecked expansion of expenditures, which has fallen into disarray due to the spread of the Amane policy.

 

In any case, a permanent reduction in the consumption tax rate to 5% to ultimately

abolish the consumption tax may lead to an increase in the fiscal deficit and government debt in the short term, but this will be reversed in the medium to long term by a virtuous cycle of consumption and investment.  In other words, it can enhance sustainable economic growth in the medium to long run.

 

Based on this, we should proceed with tax reform to increase tax revenue thanks to the fruit of economic growth, and then to raise taxes such as corpore taxes.

 

Once again, the big problem lies in the wasteful and inefficient expansion of government

spending.  In nutshell, short-term debt may not necessarily be a big problem.

 

By contrast, the normalization of monetary policy must be carried out as quickly and quietly as possible. This is because if the real policy interest rate, which takes inflation into account, remains significantly negative, further acceleration of inflation and the amplification of asset bubbles could be inevitable.  In any case, the following is a reprint from an Asahi editorial.

 

"The economic environment with ultra-low interest rates that has allowed unchecked fiscal management is changing.  Although there is an urgent need to break free from debt, the administration is not facing this and is even taking a stance of shelving the issue. Improving spending efficiency and tax revenue We should seriously work on securing it.

 

The government has decided on next year's budget.  The General account expenditures will be 112 trillion yen, the first decrease in 12 years based on the original budget.  However, many of the reductions are due to special factors, and the amount of the reduction will be limited to just over 2 trillion yen.  The reality is that there is no brake on the expansion.  Social security costs continue to rise due to the aging population, and Prime Minister Kishida has also increased the budget for defense and children's policies.

 

The government has announced a policy of “returning to normal times'' with regard to expenditures that have ballooned due to the response to the coronavirus pandemic, but this is only halfway through. The contingency fund, which has been abused, will be reduced by 4 trillion yen, but the budget is still 1 trillion yen higher than normal, in order to counter rising prices and promote wage increases.

 

In the first place, the state of the government's finances in recent years cannot be determined just by looking at the initial budget.  It has become common for the government to set up huge supplementary budgets in the middle of the fiscal year under the pretext of economic measures, and this was repeated this fall.  This is the main cause of fiscal deterioration. It is not persuasive if the government says that it “payed close attention to fiscal soundness'' at the initial budget stage, but continues to use “loopholes'' in the amendments.

 

The issue of revenue cannot also be overlooked. The fixed tax cut that the prime minister has forced forward will blow a hole in tax revenue and increase the deficit by more than 3 trillion yen.  New issuance of national bonds has reached 35 trillion yen, and a significant portion of the budget remains dependent on debt.

 

The sources of funding for defense spending and child policy, which are expected to increase in the future, also remain largely uncertain.  It is fundamental to fiscal management to proceed with permanent spending increases without allocating money to important areas.

 

The administration's irresponsibility in delaying difficult issues such as increasing burdens while being enthusiastic about popular policies was also demonstrated in the current budget formulation.  However, steering the government's finances is facing a difficult situation.

 

Long-term interest rates, which had been near zero for a long time, have turned to an upward trend, and the Ministry of Finance has significantly raised the assumed interest rates on debt.  The national debt cost, which is used for repayments and interest payments, will rise to 27 trillion yen next fiscal year.  If the Bank of Japan's large-scale monetary easing comes to an “exit'', interest rates will likely rise further.

 

The outstanding national debt is expected to reach 1,100 trillion yen at the end of next fiscal year.  If the interest payment burden increases, it will also put pressure on necessary policy spending.  In order to reduce the risk of the government's finances becoming a combustible mess, it is essential to rebuild both expenditures and revenues.  Each political party has a responsibility to make the country's foundations sustainable and pass them on to the next generation.  I hope for serious debate in the Diet deliberations on the budget bill. ”

 

 

Can this countermeasure for the declining birthrate give us hope for the future?

 

Furthermore, although the Nikkei editorial dated the 24th with the above subheading is quite persuasive, it is not without problems.  This is because it is impossible to stop the declining birthrate through ad-hock countermeasures.

 

In addition to families that already have children, isn't it necessary to support young people who are about to get married and dream of having children in the future and creating rich and happy families?

 

Can it be said that measures to reduce the birthrate are appropriately addressing the issue of disparity in the fact that families who are already married are relatively wealthy and are therefore getting married and having children?

 

Permanently lowering the consumption tax rate to 5%, with the goal of abolishing the consumption tax, is the only way to move the Japanese economy toward a virtuous cycle of consumption and investment and restore Japan to sustainable economic growth.

 

In any case, without hope for the future, fundamentally preventing the declining birthrate is nothing but a pipe dream.

 

In any case, the following is a reprint of the Nikkei editorial.

 

“The government has approved the “Children's Future Strategy,'' a new measure to counter the declining birthrate.  The government positions the declining birthrate as the "biggest crisis" facing Japan, and its concrete acceleration plan is worth 3.6 trillion yen.  We would like to make this a step forward for the younger generation to fulfill their wishes for marriage and childbirth with peace of mind, but there are still many issues to be resolved.

 

First and foremost is financial resources.  The government plans to use the medical insurance premium route to collect 1 trillion yen per year in “Children and Childcare Support Funds'' by fiscal 2028.  In order to achieve this goal, a system is needed in which a wide range of people can cooperate according to their ability to pay, but support funds are weakly focused on the ability to pay.

 

It is good to have a system that requires elderly people to pay, but the burden for people over 75, who account for more than 15% of the total population, is only around 7%.  Efforts should be made to reduce the burden on working generations by introducing a system that determines the burden on households based not only on income but also on the status of asset holdings.

 

The government has vowed to implement thorough spending reforms by fiscal 2028, when the subsidy system is fully operational, and Prime Minister Fumio Kishida has repeatedly said, “There will be no substantial additional burden.'' Regarding this policy, the government has stated that it will have a net effect of reducing social insurance burdens by 0.33 trillion yen between fiscal 2023 and fiscal 2024.

 

However, this calculation is unreasonable. The government has explained that the increase in medical and nursing care costs due to wage increases for medical workers will not be included as a “burden'' as long as it is within the wage increase rate for the general public.

 

Rather than making such a fuss, we should work on spending reforms that directly lead to curbing medical and nursing care costs.  If this is not done, the working generation will feel a growing burden, and this may affect their desire to have children.

 

There are also orders regarding the contents of the measures. The new plan includes a number of economic supports, such as extending child allowances to high school students, eliminating income restrictions, and making college tuition free for households with multiple children, and also specifies the start date.  However, a major factor in the declining birthrate is the increasing number of unmarried people. There is an urgent need to provide support for the younger generation to stabilize their economic foundation through their own employment.

 

It will be important to reform the rigid labor market, which is difficult to break out of once a person becomes a non-regular worker, and to correct the disparity in treatment between regular and non-regular workers.

 

These measures concern not only the younger generation but a wide range of generations. The same goes for changing the practice of long working hours that leave no time for childcare, and changing the division of housework and childcare that is biased toward women.  The current state of Japanese society itself is causing a declining birthrate. I want to share this sense of crisis with society as a whole. ”

 

 

Japan will make a major comeback with the new three arrows of putting the people first (① abolition of consumption tax + ② normalization of interest rates + ③ abolition of industrial policy)!

 

 

As we have already seen, Japanese politics is currently in great turmoil due to the “politics and money scandal'' under the Kishida Liberal Democratic Party administration, which was centered on the Abe faction, the largest faction of the Liberal Democratic Party.

 

On the other hand, the Japanese economy, or at least general consumers, is now facing a “cost of living crisis,” particularly in food, with inflation well above 2%.

 

Discussions that focus on the details of taxes and those that ignore the forest for the trees, such as measures to counter the declining birthrate, are not necessarily essential at a time when we are facing what appears to be the greatest political and economic crisis in the post-war era.

 

In fact, if you look at Kishidanomics and Uedanomics comprehensively, it is self-evident that they are just the third incarnation of Abenomics, which has been going on for over the past 10 years.

 

For example, first of all, there is (1) bold monetary easing, which continues to provide preferential treatment to large exporting companies led by low interest rates and a weak yen, and secondly, (2) wasteful and inefficient expansion of expenditures called flexible fiscal policy. Thirdly, (3) the final arrows of Abenomics consisted of inefficient industrial policies favoring Abe friends and unfair treatments in favor of interest groups, which were called “growth strategies.”

 

In this way, it is clear that the combination of Kishidanomics and Uedanomics is a perfect combination of the Abenomics of the Suga administration.

 

Now, led by the Abe faction, the largest faction in the Liberal Democratic Party, the Kishida administration's “politics and money'' are resurfacing.  At the same time, BOJ Ueda, who replaced former Governor Kuroda this spring after continuing to support Abenomics for 10 years, has continued to fire Abenomics' first arrow of bold monetary easing, which is very regrettable.  I can't help but think that this is causing the phenomenon of "excessiveness" or economic populism.

 

The result of this is Japan's current social trend of “just the moment, just the money, and just the self,'' and the excesses of this trend may be the result of scandals surrounding `politics and money'' and the amplification of asset bubbles.

 

In other words, it must be said that the Kishida Liberal Democratic Party government is nothing more than the third incarnation of Abenomics, in which the "upper class citizens" are increasingly inherited and privileged, and in addition to the consumption tax, they are now focusing on inflation taxes to expropriate and exploit the general public.　We must now aim to denounce this corruption head-on and completely eliminate it and revitalize Japan.

 

As economists Acimoglu and Robinson argue in their book `Why nations fail'', we cannot help but think that our country, which is not under a “democratic and inclusive political and economic system'', will perish if things continue as they are.

　

In the end, “money-filled and corrupt Japanese politics'' must be completely liquidated immediately.  Instead of nitpicking, we should look at the forest (mori in Japanese)

rather than the trees.  Just to be sure, I am not referring to Mori (former prime minister), a stalwart of the Abe faction, who is in the midst of a “politics and money scandal'' (just a light joke).

 

In order to stop the expropriation or exploitation of the general public by the "upper class citizens," which is becoming increasingly inherited and privileged, it is necessary to control the inflation tax that is currently accelerating and to permanently reduce the consumption tax to 5% to abolish the current 10% heavy consumption tax.  There is no doubt that the key point will be a reduction in the consumption tax rate (see my simulations based on Samuelson’s classic consumption and investment virtuous cycle model).

 

Furthermore, if price control measures are to be taken in the first place, normalization of the Bank of Japan's monetary policy must be the first priority.

 

However, in order to normalize monetary policy, which includes a series of interest rate hikes, including the lifting of the negative policy rate, it will be difficult to avoid the risk of an economic recession due to a sharp rise in interest rates as a side effect.  For this reason, it is essential to permanently reduce the consumption tax rate to 5% in order to ultimately eliminate the consumption tax.

 

In this way, only by permanently lowering the consumption tax rate to 5% to stabilize prices and eliminate the consumption tax, can a virtuous cycle of consumption and investment be created, leading to sustainable economic growth.

 

In the face of the biggest political and economic crisis in the post-war era, repeating petty debates will do us harm but do no good.  It is a waste of time and can unnecessarily confuse and mislead the public.

 

Either way, the greatest crisis can be the greatest opportunity. I would like to believe that now is a once-in-a-lifetime opportunity for Japan to make a comeback.

 

Last but not least, in my book titled by ”Scenarios for Japan's Revival,'' I believe that Japan could be revived if it had a people-first economic policy that valued the lives, property, and livelihoods of the “ordinary people'' rather than the “upper-class citizens.''

 

A new three-pronged economic policy that replaces Abenomics, which has now become outdated, and puts the people first: (1) abolition of consumption tax, (2) normalization of interest rates, and (3) abolition of arbitrary industrial policy is in order.  

 

The possibility of a “Great Revival of Japan!'' , namely the Reiwa Ishin (Renewal) without violence for the first time in Japanese history is about to open up now, as we approach Christmas 2023.

 

Whether we can seize what is probably our country's last chance depends solely on the awareness and strong will of each of us. 　

 

Merry Christmas 2023!

 

 

Tomo Nakamaru

Former World Bank Economist