Was Japan Approved?

Good reputation can be won because of one’s good behavior, or bad behavior of others. Japan reportedly achieved an approval on its monetary easing policy at the meeting of G20 Finance Ministers and Central Bank Governors’ meeting in Washington, DC, on Friday. But it is too early to recognize it as a green light for Japan’s economic policy. The main message of G20 was to urge parties, including Japan, to reduce national debt. The world keeps on watching what Japan is doing.

In Japan, the meeting was mainly regarded as the debut stage for new chairman of Bank of Japan, Haruhiko Kuroda. In terms of deterring criticisms against Japan’s monetary policy, Kuroda was successful to do that through dialogues with so-called monetary mafia including Ben Bernanke or Mario Draghi. The final communiqué recognized Japan’s monetary easing as “intended to stop deflation and support domestic demand.” Parties understood that Japan’s policy has more benefit in terms of providing good news to world economy than deficit of cheap Yen impacting each economy. In other words, Japan was welcomed, because other economies, namely Europe, were too bad.

The gravity of G20, however, was on improving national finance. The communiqué unequivocally demands that “Japan should define a credible medium-term fiscal plan,” which is recognized as a big homework. Three years ago, Japan promised to cut its ratio of deficit in primary balance against gross domestic products by half by 2015 and eliminate by 2020. In spite of that the implementation of it is the most obvious target Japan needs to achieve, Prime Minister Shinzo Abe has still not showed any schedule for it. There is no effective policy to reduce impacts of consumption tax hike next year.

It has been said that Bank of Japan needs to be careful about being criticized as financing for national budget. While Kuroda explained other parties that the target was genuinely to get rid of deflation, Abe emphasized the positive effect of inflation target policy saying that national pension budget has improved, or revenue for disaster reconstruction was expanded, by rallying of stock market. It showed that Abe’s economic policy still depends on the gambling over stock market.

Reflecting the potential frustration, other parties stress the temporality of approval on current untraditional monetary easing policies. “We recognize that Japan’s policy should be temporal measure and the policy needs to be accompanied by structural reform,” told German Financial Minister, Wolfgang Schàubre. It is more important for Japan to show a clear roadmap toward stable growth through deregulation than to talk big about “Japan’s back.”