12:00 AM, Apr 6, 2013 • By IRWIN M. STELZER
All of which is of more interest to economic policy types at the White House than it is to those concerned with foreign and security policy. Abe understands this, and emphasized on his visit here that “the trust and the bond in our alliance is back.” In their meetings with me, Abe’s supporters spoke of Japan’s willingness and ability to “support the U.S. forward military presence.” At their joint press conference the president cited “our concerns about the provocative actions that have been taken in North Korea.” He also declared that “the U.S.-Japan alliance is the central foundation for our regional security and so much of what we do in the Pacific region.”
Mr. Abe fell in line with that emphasis on security. The security environment in the Asia-Pacific region is “becoming more and more difficult”, he said, and the U.S. and Japan must cooperate “to secure an order in the region … [and] the freedom of the seas…. Concerning the South China Sea and the Senkaku Islands … the very existence of the Japan-U.S. alliance is a stabilizing factor.”
In short, American policymakers support Abenomics despite its possible negative economic effects here—denied by the Japanese—because the success of the Japanese economy, and of Abe who is friendly to us, is important to American interests in the Pacific region, especially now that North Korea is hurling threats of nuclear attacks on U.S. territory.
The question is: will Abenomics work? Possibly but not certainly: building inflationary expectations among businesses, so that they will raise wages, and consumers, so that they will spend more, is a daunting task, which Mr. Kuroda expects will take two years and doubters say is simply beyond the reach of monetary policy. Some say Mr. Kuroda knows this full well, and has in essence challenged the government—I’ve done my part, now you get on with deregulating labor and energy markets, and the health care sector. The prime minister runs several risks, of which he is well aware.
· Loose fiscal and monetary policy might unleash hyper-inflation that drives up the cost of servicing Japan’s huge debt, which stands at 200 percent of GDP.
· The falling yen might result in competitive devaluations by Japan’s competitors.
· Government stimulus spending—Y10tn is slated—might have little enduring effect on economic growth—a lower multiplier is the way economists put it.
· Plans to free up trade by joining the Trans-Pacific Partnership free trade area might be shot down by the mighty farm lobby.
Abe’s supporters say that these risks are far less than the risks of doing nothing. Not a bad way of making economic policy in a long-stalled economy.
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