Japan eyes green energy, health as growth tonics; economists skeptical

July 31, 2012 by  
Filed under Green Energy News

TOKYO (Reuters) – Japan’s government on Tuesday approved its new long-term economic revival plan, which focuses on renewable energy, healthcare and farming, but economists were skeptical about whether it would really help Tokyo hit its growth targets.

Japan needs solid economic growth to have a fighting chance of reducing its public debt burden, which already exceeds two year’s worth of economic output and which economists say cannot be brought down by raising taxes or cutting spending alone.

The plan, an update of a growth strategy compiled in 2010, targets average annual nominal economic growth of 3 percent and real growth of 2 percent in a decade to the fiscal year of 2020, but economists warned it was betting too much on growth of domestic markets.

Instead, they said the strategy should put more emphasis on free trade deals as a way of unlocking growth in an economy beset by a decade of deflation, a strong currency and a shrinking workforce.

“Ideally, the development of trade agreements should be a pillar for the strategy,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

“(Otherwise) it will be difficult to achieve nominal 3 percent growth, considering a decline in working-age population.”

Following last year’s Fukushima nuclear disaster, the government ditched plans to boost the use of nuclear power in favor of green energy, with a goal of creating new 50 trillion yen ($640 billion) market and 1.4 million new jobs by 2020.

Economists, however, said replacing nuclear power with new energy sources would not do much to spur growth and the renewable sector would only make a significant contribution if Japan turned it into one of its export industries.

“It would help the economy if Japan could raise its competitiveness in the global renewable energy market … because the nation now lags behind,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

Economists were equally skeptical about the contribution that health and nursing care services could make to Japan’s overall economic performance.

The strategy sees the sector nearly doubling in size by 2020, growing by 50 trillion yen and adding 2.8 million jobs.

While economists agree the sector should expand given Japan’s fast ageing population, they say relatively low salaries mean it will not have much impact on aggregate demand.

TRADE?

The government has made trade agreements part of the plan with a goal of having 80 percent of exports covered by free trade deals, compared with 18.6 percent now, but Kumano said trade should be given more prominence.

Japan has been discussing a trade deal with the European Union and a U.S.-led Pacific Rim pact, but any decisions are on hold while Prime Minister Yoshihiko Noda focuses on securing support for his contentious plan to double the sales tax.

The growth plan talks of using a combination of legislative changes, subsidies and other financial incentives to achieve the targets, but offered no estimates of the costs.

The Nikkei business daily reported earlier this month, however, that the government aimed to allocate about 1 trillion yen ($12.8 billion) in the next budget.

Besides the funding, hard-to-find political agreement in a divided parliament would be needed to reform the healthcare sector, for example, to allow patients to combine private and public health insurance coverage, analysts said.

They also said the government’s poor record in meeting previous targets cast doubt over its new set of goals.

Of 409 programs listed in the 2010 strategy, only 9 percent have been implemented and shown clear results, though some of the delays could be blamed on the upheaval caused by last year’s massive earthquake and tsunami.

“The earthquake and political deadlock made it difficult to execute much of the previous strategy,” said Mizuho’s Yamamoto.

“So it is key whether these visions can be accompanied with more detailed plans and whether they can be carried out quickly.”

($1 = 78.1900 Japanese yen)

(Editing by Tomasz Janowski Kim Coghill)

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