The outlook for Japan's economy is the brightest in a long time but the government now has a big challenge cutting its debt mountain without derailing the recovery, the OECD head said yesterday.
"It's a much more optimistic picture, frankly, than I've seen for a long time," said Donald Johnston, the outgoing head of the Organization for Economic Cooperation and Development.
Japan's debt is the highest among industrialized nations after its government spent trillions of yen on emergency stimulus packages to try to haul the economy out of its deflationary doldrums following the asset bubble burst.
Momentum
Confidence is growing that the world's second-largest economy is finally on a solid recovery path after its decade-long slump, as reflected by the central bank's decision last week to scrap its five-year ultra-loose monetary policy.
"Everybody's very heartened. We've had now 50 months of expansion," Johnston said on the sidelines of an OECD seminar in Tokyo.
"The question is to make sure that expansion is sustained but at the same time we have to emphasize there's a public debt to GDP ratio of 160 percent," Johnston said.
He said the challenge facing the Japanese government now was, "How do you bring about fiscal consolidation without essentially endangering what everybody hopes will be a long-term and sustained recovery?"
"Of course as economic growth increases, that ratio of debt to GDP automatically falls," Johnston said.
Many private-sector economists believe that the government will soon have to raise the consumption tax to top up the public coffers although Prime Minister Junichiro Koizumi has ruled out a hike in the politically sensitive levy, which is now at 5 percent, before 2008.
Tax dilemma
Johnston said that a hike in indirect taxes could be risky.
"Back in 1997 there were the beginnings of a recovery and then the consumption tax was increased and the recovery stopped. So it's finding that balance which is what the government is struggling with," he said.
Johnston met with Japan's Economic and Fiscal Policy Minister Kaoru Yosano late on Monday and urged Tokyo to step up its efforts regarding fiscal reform while interest rates are still at low levels, according to Japanese officials.
The OECD, which groups the world's most developed countries, has previously urged the Bank of Japan to delay raising interest rates to give the economy more room to recover.
In its most recent global economic outlook released in November, the Paris-based grouping forecast 2 percent economic growth in Japan at least until next year.
Johnston, a Canadian who has headed the OECD for a decade, will soon retire and be replaced on June 1 by former Mexican finance minister Jose Angel Gurria.
Super Typhoon Kong-rey is the largest cyclone to impact Taiwan in 27 years, the Central Weather Administration (CWA) said today. Kong-rey’s radius of maximum wind (RMW) — the distance between the center of a cyclone and its band of strongest winds — has expanded to 320km, CWA forecaster Chang Chun-yao (張竣堯) said. The last time a typhoon of comparable strength with an RMW larger than 300km made landfall in Taiwan was Typhoon Herb in 1996, he said. Herb made landfall between Keelung and Suao (蘇澳) in Yilan County with an RMW of 350km, Chang said. The weather station in Alishan (阿里山) recorded 1.09m of
STORM’S PATH: Kong-Rey could be the first typhoon to make landfall in Taiwan in November since Gilda in 1967. Taitung-Green Island ferry services have been halted Tropical Storm Kong-rey is forecast to strengthen into a typhoon early today and could make landfall in Taitung County between late Thursday and early Friday, the Central Weather Administration (CWA) said yesterday. As of 2pm yesterday, Kong-Rey was 1,030km east-southeast of Oluanpi (鵝鑾鼻), the nation’s southernmost point, and was moving west at 7kph. The tropical storm was packing maximum sustained winds of 101kph, with gusts of up to 126 kph, CWA data showed. After landing in Taitung, the eye of the storm is forecast to move into the Taiwan Strait through central Taiwan on Friday morning, the agency said. With the storm moving
NO WORK, CLASS: President William Lai urged people in the eastern, southern and northern parts of the country to be on alert, with Typhoon Kong-rey approaching Typhoon Kong-rey is expected to make landfall on Taiwan’s east coast today, with work and classes canceled nationwide. Packing gusts of nearly 300kph, the storm yesterday intensified into a typhoon and was expected to gain even more strength before hitting Taitung County, the US Navy’s Joint Typhoon Warning Center said. The storm is forecast to cross Taiwan’s south, enter the Taiwan Strait and head toward China, the Central Weather Administration (CWA) said. The CWA labeled the storm a “strong typhoon,” the most powerful on its scale. Up to 1.2m of rainfall was expected in mountainous areas of eastern Taiwan and destructive winds are likely
The Central Weather Administration (CWA) yesterday at 5:30pm issued a sea warning for Typhoon Kong-rey as the storm drew closer to the east coast. As of 8pm yesterday, the storm was 670km southeast of Oluanpi (鵝鑾鼻) and traveling northwest at 12kph to 16kph. It was packing maximum sustained winds of 162kph and gusts of up to 198kph, the CWA said. A land warning might be issued this morning for the storm, which is expected to have the strongest impact on Taiwan from tonight to early Friday morning, the agency said. Orchid Island (Lanyu, 蘭嶼) and Green Island (綠島) canceled classes and work
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