Former World Bank president Robert Zoellick on Monday said Japan’s economic drive needed accompanying structural reforms, voicing fear that recent growth could be just a “sugar high.”
Japan posted 0.9 percent quarter-to-quarter growth in the three months through March, during which time Japanese Prime Minister Shinzo Abe took charge with a platform that has featured ramping up money supply and intense fiscal stimulus.
“On the one hand, I think it’s understandable that Prime Minister Abe would come in and try to have some shock effect. But no one should be under the illusion that this isn’t a big if,” said Zoellick, whose term ended last year.
“What I would watch ... [is] how do you make sure that it isn’t just a sugar high? How do you make sure that there is a follow-through?” Zoellick told a forum on relations between the US and New Zealand.
Zoellick said Japan already had a debt problem and needed to go through structural changes to liberalize its economy.
He voiced hope Abe’s move to enter talks on the emerging Pacific-wide free trade deal, the Trans-Pacific Partnership (TPP), was a way to force Japan into taking politically risky reforms.
“If Japan doesn’t undertake those structural reforms, either through its own policies or through the TPP or both, I worry that this will primarily be a currency devaluation strategy — and that has dangers for others,” he said.
The yen sank this month to more than 100 to the US dollar for the first time in more than four years. The weaker yen benefits Japanese exporters by making their goods cheaper, but has prompted criticism by some competitors.
Japan’s first-quarter growth — which would be 3.5 percent if the data were on an annualized basis — came after the world’s third-largest economy spent much of the past two decades stuck in low growth or worse.
Separately, weakness in the yen may have a bigger effect on South Korea’s economy this quarter and is already trimming the nation’s trade surplus, a senior South Korean Ministry of Finance official said.
“I expect second-quarter economic indicators to show more effect from the weakening yen,” Choi Hee-nam, 52, a director general at the ministry, said in an interview in Sejong yesterday. “The surplus from exports is narrowing.”
The yen’s 20 percent slide against the US dollar over the past six months threatens to undermine South Korean exporters.
Bank of Japan officials next set monetary policy today, with most economists in a Bloomberg News survey forecasting no change to the unprecedented easing that’s driving down that nation’s currency.
The businesses most vulnerable to the yen’s decline are very small companies exporting seaweed, oysters and other seafood that are paid in the Japanese currency rather than dollars, Choi said.
More “support measures” for South Korean industries to counter the effects of yen depreciation are possible, Choi said.
On May 1, the government said it would boost special loan programs, including for small-to-medium-sized exporters, by 11.1 trillion won (US$10 billion).