Japan’s Economic Prospects for 2010

by Nabeem Hashem

Like President Obama, Japanese Prime Minister Yukio Hatoyama enjoyed a hopeful, albeit brief, honeymoon period with the Japanese public after last summer’s historic election in which the Democratic Party of Japan ended the Liberal Democratic Party’s fifty year rule. But as he brings his country into 2010, Hatoyama has little to celebrate about. After his approval rating slid to 50% from a high of 70% in September due to a political donations scandal and disputes with the U.S., Hatoyama admitted in a New Year’s address, “Our honeymoon period is over.”

Hatoyama and his party have been forced to regroup and refocus their efforts for 2010 on fixing Japan’s sluggish economy. Although it emerged from recession in the third quarter of last year, Japan still faces high unemployment, deflation, and soaring deficits. Unfortunately, these are problems with conflicting solutions. Hatoyama has made fighting deflation and cutting unemployment his clear priorities, at the expense of raising the deficit. In December, he unveiled a record $1 trillion budget for the 2010 fiscal year, designed to increase the spending power of households.

This option comes with considerable economic and political risks. Public optimism is key- unless there are indications that economic stagnation will end, households may decide to save the money funneled to them by the government instead of spending it, leading to further stagnation. Yet this kind of optimism will be hard to come by with poor employment figures and continuing deflation.  On top of this, Japan’s debt-to-GDP ratio is quickly approaching 200%, the highest in the developed world, leading many in the country to believe that massive public spending will prove to be unsustainable. Hatoyama’s government will need to bring about quick results to ease concerns and boost public confidence if it wants to achieve its objectives.

Still, Hatoyama seems to have a good sense of his challenges and the resources he can use to combat them. After the resignation of his finance minister, Hatoyama appointed deputy prime minister Naoto Kan to the position. Kan, known for battling bureaucrats throughout his career, is expected to help bring about reform by shifting power away from the bureaucrats of the powerful and highly secretive Finance Ministry, which has been entrenched in the policies of the LDP for the last fifty years.  How far this kind of judgment will take Hatoyama will be seen after the upcoming upper house elections this summer.

The Rise of China in 2010

by James Luo

The rise of China in the international market must be the foremost rags-to-riches story of recent times. With the country’s economic growth comes an increasingly significant role in the arena of global politics. If the 2000s were the story China’s economic growth-spurt, then the 2010s are likely to be the tale of its coming-of-age as a global power.

China will not have to wait long for the global limelight. In May, the 2010 World Expo will be held in Shanghai. The event will feature the breathtaking Expo Axis building and magnetically levitating trains, developments fitting the event slogan: “Better City—Better Life.” Pageantry aside, the Expo falls in the tradition of World Fairs that had announced the rise of London and Paris in the 19^th century. From today’s perspective, it is tempting to think that China is destined to follow the macronarrative of economic and political ascent of old European powers. But the world faces different issues today and the Peoples’ Republic will act accordingly.

China demonstrated some of its mettle in the international scene during the Copenhagen climate talks of late 2009. The country resisted calls for emissions reductions in the face of essentially universal pressure. Though its first move is one of environmental stubbornness, China certainly recognizes its substantial leveraging power at the global level. This influence, derived from the country’s prominent economic position, will be used to increasing effect in coming years.

China, however, will not be reckless with its recently-realized power. Beijing is burdened with the domestic concerns of the People’s Republic—a population of almost a billion and a half reaching for the promises of modern life. China’s test will be whether it can deliver the “Better City—Better Life” to its citizens while maturing into a responsible and responsive member of the global community.