August 31, 2009

Analyst: Japan may need more deregulation

Japan's newly elected DPJ government may not like U.S.-style market-led reforms, but economists in Japan say more of that may be needed to lift the economy.

The Democratic Party of Japan, which won a landslide victory in Sunday's election to the lower house of parliament, and its leader Yukio Hatoyama had campaigned on boosting social welfare and moving away from excessive U.S. style market reforms.

However, experts told The New York Times, the country may need more, not less, deregulation and market-led growth.

Reform has become a bad word in Japanese politics, said Richard Jerram, chief economist for Japan at Macquarie Securities. Japan is now more reluctant than ever to use market forces to raise productivity. But these changes are crucial.

Before the election, Hatoyama, who is likely to become prime minister, had said U.S.-style capitalism was void of morals or moderation which Japan must reject. However, he seemed to back away from that language a day after the election, the report said.

Economists told the Times Japan's domestic service sector, which accounts for 70 percent of the economy, is an overregulated, inefficient mess.

They say Japan must increase productivity, especially at a time when it faces a rapidly aging population and almost no immigration that could stimulate population growth. Additionally, Japan's jobless rate has hit a record high of 5.7 percent.

The Democrats are veering off the reform path, but I don't see what will come in its place, Toshio Nagahisa with Tokyo's PHP Research Institute told a recent forum.