No wonder Japan’s recovery is in danger from the country’s slack politicians.
There’s ample evidence the economy is doing better by the day, with May steel production rising above 9 million tonnes (annual rate of 108 million) from the 8.433 million tonnes in April when it was hit by the impact of the March 11 disasters.
The 7% rise was in response to rising demand from car companies like Toyota and Honda, which are slowly lifting production towards pre-March 11 levels.
The recovery in the car industry was confirmed yesterday with the news that Toyota is to make its first hirings in Japan since late 2009, when the company and the economy was hunkered down as the GFC depressed demand.
The Nikkei newspaper reported that Toyota will hire between 3,000-4,000 contract workers next month to help boost output after the March 11 earthquake caused production delays.
The carmaker will use temporary or short-term, non-permanent employees as it expects labour shortages from the autumn when it is expected to really start ramping up production.
Nikkei said Toyota last hired contract workers in November 2009.
But while the business outlook is on the improve, the political impasse over the future of prime minister Naota Kan continues to block radical changes to the tax system that would send a significant message to the rest of the world.
At the same time, some politicians in both the DJP government and LDP opposition are reluctant to agree to the tax increases because they reckon the economy is not strong enough, ignoring the fact that the strength of the positive message about cutting debt and government deficits would go a long way to easing fears that the country’s credit rating is going to be cut (which will happen if there’s no move to boost tax revenues).
Prime Minister Kan is under pressure to resign, or give the timing for his departure, and then rivals in the DJP and the opposition will discuss the tax and other changes (to social welfare).
Mr Kan has repeatedly called for cross-party co-operation on reform to cut the budget deficit and gross state debt that will this year soar to more than 200% of GDP.
Opposition groups are currently focused on forcing Mr Kan’s resignation and have shown little interest in co-operation, despite his appointment of Kaoru Yosano, a former leading member of the opposition Liberal Democratic Party, as minister for economic and fiscal policy.
The timing of an agreement on the reforms is now up in the air.
According to media reports in Tokyo, the government hopes to finalize a blueprint for overhauling the country’s social security and tax systems by the end of this month (i.e. late next week).
The government on Monday failed to win approval from the ruling coalition for its tax and social security overhaul plan, which is centered on doubling the consumption tax to 10% in stages by March 2016.
Japan’s economy minister Kaoru Yosano said Tuesday that the government’s failure to meet a self-imposed deadline the previous day for finalizing a blueprint for tax reform and other fiscal overhauls will not hurt markets for now.
"It’s not at the stage where this would have an impact on the market," Yosano said at a regular press conference. "The effort hasn’t been tossed aside; it’s rather that debate is still continuing."
Yosano said there is broad understanding among Japanese people of the need for a sales tax increase as part of efforts to improve the country’s troubled fiscal situation.
Yosano said he expects an agreement on the fiscal overhaul to be reached eventually, and that changes to the plan to raise the consumption tax would be "extremely difficult" as it is a core component of the package.
But he would not specify a new time frame for when he believes an agreement may be reached.
But in a sign cross-party co-operation is still possible, the Japanese parliament’s upper house, which is controlled by the LDP, passed the reconstruction bill on Monday by 236 votes to 219.
As well as creating a reconstruction agency, the law authorises the issuance of government bonds to finance the cost of rebuilding, and calls for the creation of economic zones in the disaster area offering preferential regulations for local businesses.
