In Preparation for G7 Summit

In Preparation for G7 Summit

[INTERVIEW]

Mr. Motoyuki Odachi
Member of the House of Councilors

JAPAN and the WORLD conducted interview with Mr. Motoyuki Odachi, Member of the House of Councilors, to find out more about the next year G7 Summit taking place in Japan.


—In May 2016, the 42nd G7 Summit will be held in Japan. Since the holding of the 41st G7 Summit in June 2015, many regions around the world have been experiencing economic crises. What kind of economic issues are likely to be on the agenda for discussion at the G7 Summit in 2016?

Japan has been steadily printing money under its “quantitative and qualitative easing” (QQE), an unprecedented form of monetary easing, but this cannot continue forever, and it can be anticipated that the question of what Japan should do in the future in this regard will also be discussed at the next G7 Summit.

It is still too early to say what topics will be discussed at the May 2016 G7 Summit. However, one area that is likely to be a focus of attention is Base Erosion and Profit Shifting (BEPS); Japan’s Deputy Vice Minister of Finance is currently chair of the OECD’s Committee on Fiscal Affairs, which has responsibility for BEPS-related matters. Leading international corporations such as Starbucks and Apple devise amazingly complex schemes to avoid paying tax in particular countries. Without cooperation at a global level, these companies will be able to exploit individual countries that have loopholes in their tax legislation, so it is entirely appropriate for the discussion about BEPS to be positioned as a global issue. A further issue relates to the fact that, with the coming to an end of quantitative easing in the U.S., it is anticipated that, in autumn 2015, interest rates in the U.S. will be allowed to rise from their current level of near zero. Japan has been steadily printing money under its “quantitative and qualitative easing” (QQE), an unprecedented form of monetary easing, but this cannot continue forever, and it can be anticipated that the question of what Japan should do in the future in this regard will also be discussed at the next G7 Summit.

—Japan provides foreign aid for many countries around the world, but it seems to be little awareness of this. Could you give a few examples of Japanese foreign aid projects that have produced meaningful economic benefits? Also, how do you think foreign aid should be provided in the future?

Japan has been providing Official Development Assistance (ODA) for six decades, since 1954.

Japan has been providing Official Development Assistance (ODA) for six decades, since 1954. Initially, this began with the provision of technical assistance as part of the compensation that Japan was obliged to pay in the aftermath of the Second World War. In February 2015, the government announced a new framework called the Development Cooperation Charter. In the future, as the Asia region is expected to see rapid economic development, Japan has been providing a variety of types of aid with the aim of fostering high-quality growth. The Japanese Government has been collaborating with the Asian Development Bank (ADB), making it possible to increase the available budget for projects such as the expansion of the Delhi Metro in India, building of elevated expressways in Ulaanbaatar (the capital of Mongolia), and building of the Nhat Tan Bridge in Vietnam by 30% over five years; of the total budget of 13 trillion Japanese Yen, approximately 110 billion US dollars is being provided as aid from Japan. I believe that Japan will be seeking to provide aid for dealing with infrastructure, poverty, infectious diseases, armed conflict and education in the future.

—Japan plays a major role in the provision of Foreign Direct Investment (FDI) around the world, contributing approximately 114 billion US dollars in FDI in 2014. What would you say are particularly “Japanese” characteristics of Japan’s FDI?

With Japan’s balance of trade worsening, I think Japan’s basic stance toward investing overseas is that it needs to increase the financial return on such investment. Japanese firms have been undertaking a considerable amount of mergers and acquisitions (M&A) activity.

Due to the trend toward low fertility and the aging of the population, the Japanese domestic market is starting to shrink. This means that it is more than just a case of developing overseas markets when it comes to FDI; it is important to produce locally for local consumption. With Japan’s balance of trade worsening, I think Japan’s basic stance toward investing overseas is that it needs to increase the financial return on such investment. Japanese firms have been undertaking a considerable amount of mergers and acquisitions (M&A) activity. Japanese company Canon, for instance, recently acquired a Swedish camera manufacturer. Japan’s strength here is that a company forms a dedicated team, and undertakes extensive communication with the acquisition target before investing. Then, once the acquisition is completed, the acquiring Japanese firm sends out its best employees to work at the acquired company, so that the acquiring company can continue to grow and improve following the acquisition. I feel that this is a distinctive approach that is more or less unique to Japan.

—The Japanese economy is often evaluated by other countries, which claim that it has failed to achieve vigorous economic growth while Japan enjoys a reasonable degree of economic stability. What would you say are the particular strengths of the Japanese approach to financial policy?

I think it’s probably misleading to suggest that Japan’s financial policies are in any way superior to other countries. After all, Japan’s national and local government authorities combined have total debts of around 1,000 trillion Japanese Yen. That is equivalent to twice Japan’s GDP, which is the highest level of any country in the world. One reason why Japan has been able to get away with this is that these debts are held within Japan itself, not overseas; also, the government has been able to use the Consumption Tax to make good what would otherwise have been a significant shortfall in revenue. The Consumption Tax will be increased to 10% in 2017; what the government really needs to do is to make a serious effort to tackle the problem while the Consumption Tax rate still seems relatively low by comparison with the situation in Europe. Many Japanese citizens have been calling on the government to utilize its tax revenues more effectively. Since citizens have been saying that this is important, the government has been setting new financial objectives and working to improve governmental efficiency, so as to be able to do something along these lines. The main reason for Japan’s fiscal deficit is large borrowings to cover social welfare expenditure. In 1990, government expenditure totaled 43 trillion yen. Social insurance expenditure includes pensions, healthcare, and long-term care provision. By 2015, mainly because of increased social insurance expenditure, total government spending had risen to 116 trillion yen. This means that the government now needs to cover roughly 50 trillion yen in additional expenditure through the use of public funds, borrowings and taxation. As a result, Japan’s national tax burden rate now stands at 38.5%, compared to 30% for the US, and 60% for France. Although 38.5% is still relatively low when compared to many other countries, public confidence in the government has been negatively affected. It is felt that the government “only listens to certain groups within society, and is wasting money as a result.” There is a general feeling that a lot of government expenditure mainly benefits vested interests, and any attempt to change the status quo is likely to provoke loud complaints from these vested interests because this does seem to be the case to some extent. However, I think that it is politicians’ job to listen to those people who normally cannot make their voices heard. Until now, as the government has generally tended to take the side of the private sector, it has allocated sizeable budgets where they were asked for. Recently, there is a reaction against this, and people are being told that they need to do with less. At the same time, the feeling that the government has no choice but to disassociate itself from vested interests is going to have a serious impact on two different levels. Overall, I feel that it is better if the government avoids involvement in those areas where it does not need to be involved.

—Japan is world-renowned for its technological capabilities. However, it has been heard that doing business tends to impede commercialization of this technology because the communication skills, decisiveness and speed are not high. At the macro level, this situation is probably having a negative impact on the Japanese economy. What sort of measures do you think need taking to overcome this problem?

I feel that even more pressing issue is the decline in Japanese people’s to “go-get attitude” and ability to think for themselves. The impact of smartphones, television, etc. has exacerbated this problem.

The cultivation of “global talent” who can communicate effectively in English is of course very important. It induces attractiveness that courses are taught in English at universities such as Akita University and International Christian University (ICU). In addition, cross-cultural understanding of placing international students and Japanese students in the same dorms has been strengthened. Although this is an area the responsibility for which rests with the Ministry of Education, Culture, Sports, Science and Technology (MEXT), I feel that even more pressing issue is the decline in Japanese people’s to “go-get attitude and ability to think for themselves. The impact of smartphones, television, etc. has exacerbated this problem. One of Japanese people’s real strengths is their ingenuity. I believe the government needs to allocate public funds to support the development of technology sector developed in Japan. Until now, the private sector has handled every stage from initial technology development to commercialization. It is very important that we work to cultivate the development of technologies that are unique to Japan by using joint public / private sector funds to foster the growth of new technologies that are just starting to take shape from now on.


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