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Japan’s New Government Faces Dire Economic Challenge

September 17th, 2009

Yukio Hatoyama, whose Democratic Party won a landslide election over the long-serving Liberal Democratic Party, has been officially elected by the Japanese Diet as the nation’s new Prime Minister. His number one priority is the ailing Japanese economy. Accordingly, his selection for the pivotal post of Finance Minister was clearly an appointment of the greatest importance.

The new Finance Minister of Japan is Hirohisa Fuji, a 77 year-old veteran politician and Finance Ministry bureaucrat, who had previously served as Finance Minster in the 1990s. He is reputed to be a fiscal conservative, who seeks to reduce government spending and bring Tokyo’s massive public debt under control. His challenge will be confronting the election promises emanating from his own political party, which has promised to increase social spending. Though this promise is based on the belief that economies can be found by eliminating wasted spending and massive stimulus allocations on behalf of corporate Japan, there are risks involved in pursuing this policy course.

With Japan’s export machine badly hurt due to the global contraction in trade, the agenda of the new power elite in Tokyo risks a double-dip recession.  Furthermore, the challenge of tackling a debt to GDP ratio of nearly 200% seems overwhelming. With one of the most rapidly aging populations on earth and a very low birth rate, it seems nothing short of draconian spending cuts will succeed in reducing Japan’s debt burden to manageable levels. But in order to pursue that course, Prime Minister Yukio Hatoyama will have to jettison most of his campaign spending promises.

Perhaps Japan’s new Prime Minster may seek economic advice from his wife, who has publicly claimed she was transported to the planet of Venus during one of her dreams. I raise this suggestion, as it appears that a solution to Japan’s deep and apparently insoluble economic crisis requires both a dreamlike state and an out-of -this-world solution if there is to be any prospect of a resolution without the dire risk of national insolvency.

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