Finance minister Takatsu is locked in combat with a US female hedge fund manager who is planning massive sales of Japanese government bonds, in an instalment of a popular manga comic, Golgo 13. The finance minister looks uncannily like Taro Aso.
Life is now imitating art. Manga-fan Aso has pinned his government’s credibility on achieving a primary budget surplus by fiscal 2020, helped in large part by record-low servicing costs on the national debt.
But the markets are not helping. As US interest rates climb they are dragging Japanese rates up with them — and investors smell blood in the water.
The Bank of Japan’s (BOJ) tactics of massive quantative easing and pegging the 10-year JGB interest rate around zero have rendered it a hostage to international investors.
While the BOJ has tried to reduce the appearance of being the government’s ATM and policy lackey, its bond-buying frenzy has enabled Aso to budget record levels of spending without having to enact any major, politically-painful, structural reform.
Aso, who ranks 11th out of 12 in our Finance Minister of the Year study after finishing 10th and 12th in the previous two years, is no political neophyte. He was himself previously prime minister, and has a large stock of political capital.
But so far, he has appeared reluctant to use it. The one key reform Aso has pushed for, a consumption tax hike, has been pushed back twice. In October he paved the way for another delay.
To be sure, Japan’s policymakers have achieved some success in recent years. Aso, in particular, has overseen greater revenue generation and expenditure restraint, as well as progress on fiscal consolidation in recent years.
But prime minister Shinzo Abe has tasked Aso with achieving a sustained trend of debt reduction — and on that score, there has been no significant progress yet.
Despite a favourable accounting change, general government debt in 2015 now stands at a towering 233% of GDP, the heaviest in the industrial world. Yet the government still submitted a record high general-account budget spending plan of ¥97.454 trillion ($851 billion) for the fiscal year starting April 1.
Japan’s national debt is swelling mainly due to social security costs given the country’s rapidly aging population. Aso’s public statements on the matter are hardly inspiring.
“I recently saw someone as old as 90 on television, saying how the person was worried about the future. I wondered, ‘How much longer do you intend to keep living?’” said 76-year-old Aso at a Liberal Democratic Party rally in Otaru, Hokkaido last year. This lastest gaffe follows his 2013 comment that old people should “hurry up and die” to relieve pressure on the state.
Besides this rather macabre strategy, Aso is also counting on a weaker yen to boost corporate profits and hence government revenues. But the markets have once again defied Japan’s political masters — the yen appreciated most against the dollar among Asian currencies during 2016.
In instalment 556 Takatsu is slain by Golgo. Aso should step aside, before investors move in for the kill.
