Top quality Gucci Bracelets onlinePrime Minister Yukio Hatoyama's administration will soon mark its 100th day in power--long enough for its initial performance to be assessed.
As far as economic policies are concerned, the government has been straying from the correct path, rather than steadily advancing.
Political risks within the domestic economy are gradually increasing, the first of which is fiscal management.
In late December every year, the government determines outlines for the budget and the tax system for the next fiscal year. Such decisions usually are made around this time of year, but discussions on the budget have been thrown into confusion.
During the budget compilation process, the government's budgetary requests to fiscal policy authorities amounted to a record \98 trillion in total, as though the government's campaign manifesto to eliminate wasteful fiscal spending did not exist.
In an effort to cut the requested amount, members of the ruling Democratic Party of Japan and private sector experts screened the budgetary requests. Though the publicly open screening proved effective in that it helped raise people's interest in the budget, it turned out to be less useful in terms of
identifying wasteful spending than had been expected. Consequently, the amount of the budget deemed wasteful fell far below the initial target.
Discussions aimed at increasing government revenues also are falling apart. The government's Tax Commission had considered raising the tobacco tax, setting up an environmental tax and reviewing preferential measures on the income tax. However, in the face of strong opposition, the commission likely will make only minor modifications or give up on the ideas completely.
The government likely will have to make up for fiscal shortfalls with an increased issuance of deficit-covering government bonds. Consequently, the country's fiscal condition--already the worst among industrialized nations--is expected to further deteriorate.
The second political risk is that a strategy for growing the economy remains elusive.
For instance, the budget screening decided to put off budget allocations for the research and development of rocket engines. As for the project to promote terrestrial digital media broadcasting, the screening team concluded that the requested budget for free distribution of digital tuners should be halved.
Furthermore, the government Tax Commission classified part of the tax system designed to back up the private sector's research and development programs as "unapprovable."
Experts are critical of the government's tough stance on research projects involving cutting-edge technology--a field in which Japan holds an advantage--describing the situation as being akin to the government strangling a hen that lays golden eggs.
The third risk is the disarray between the government and the Bank of Japan.
On Nov. 20, the government declared that the domestic economy was in deflation. Naoto Kan, state minister in charge of economic and fiscal policy,
Top quality Gucci necklaces sought the central bank's cooperation to arrest the deflationary trend.
In response, Bank of Japan Gov. Masaaki Shirakawa acknowledged for the first time the bank's official view that the current situation constituted a deflationary state. The bank announced additional monetary-easing measures during an extraordinary meeting of its policy panel.
However, it is believed the central bank had already decided to take a minor step before being asked to take action by the government out of fears the government would demand bolder action. Disappointment spread through the market following the bank's announcement of its easy money policy.
Above all, the central bank is keen to avoid being forced by the government to buy as many national bonds as possible.
If the central bank is seen to succumb to government pressure, it will be unable to maintain the market's confidence. However, there is no guarantee that the government will not force the bank to play this role merely because it adopted an easy money policy. This patchy cooperation could well fall apart completely.
Market players are increasingly sensitive to the daily swings in the government's economic management.
At the end of November, the yen appreciated rapidly and stock prices declined further, making the long-term interest rate volatile. Such market fluctuations involved several factors that had nothing to do with the Japanese government, such as the debt crisis in Dubai. Nevertheless, the market now takes a serious view of Japan's "political risks."
Those concerned should consider the recent series of moves as warnings from the market.
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