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Now don't get me wrong I'm not a blue eyed optimist that things everything
is fine. We do an issue in Japan, namely we do an enormous amount
of public debt. You know debt to GDP is now 200%.
You do actually see that Bank of Japan has actually done a fair bit
to monetize the debt over the last 15 years
every year the Bank of Japan has bought about 45%
of the IOU's issused by the Japanese
Treasury. So monitory and fiscal policy do go
together here. The worst thing about Japan however is not the
the fact that the level of debt is absolutely high. The worst thing is that I've got
a tax system that simply can not recoup.
This is the tax multiplier. So what does that mean?
When national income GDP
grows by 1% how much do
public revenues grow? And in a normal country, on a fair country
basically that is about 1. So when the pie
expands by 1% that the public share in it
expands by 1% as well. Unfortunately in Japan
the multiplier is 0.4%, in other words, with the current
tax system the Japanese can not grow
their way out of the problem. As a result
of that Japanese politics is not a pretty picture. Because you do you have to raise tax
and right now we are again in 1 of these situations
where the Priminister is having a tough time, who's popularity
is plunging and it's quite likely that we are actually going to get
some election in Japan coming sooner
or later. But for Japan to raise taxes
to increase the general sales tax is an issue
that they won't be able to avoid going forward.
Good news. The magic bullet for Japan, now you talked a lot about
farming. Watch out for Japanese
farming. A friend of mine
who is the Advisor to the Democratic Party and a former Bureaucrat of
the Minister of Agriculture in Japan, he actually calculates
is that Japan could become a net exporter of food
within 2 years time. And the reason is very simple.
Japan as you know is a very archaic
farm subsidy system. Where basically you are paid to produce stuff
that you could buy at 1/7th of the price in the Global Market.
If that subsidy
were to go away and the Japanese farmers would stop producing
low grade rice which you could import much cheaper from Asia
and you would actually shift to produce Kushi-dekari the
Lexus, the Porsche of rice. The Chinese
would buy this very very quickly. There is a growing market
evolution and the rising per capital income in the People's Republic of China
the market for luxury for high quality
agriculture products in Japan is rising.
The good news is, that there are lots of
negotiations with the Trans-Pacific Partnership
with GDP, a free trade zone in Asia Pacific,
spearheaded by the Americans. A very important issue
and the Government in Japan is going to be moving to a desicion
on participating in that. So watch out for this. There
is a better than ever chance that we are going to get true agricultural
reform in Japan. Peter I thought you'd find this amusing. This is how to use agricultural
land. This is in the north of Japan - they
plant different grains of rice so that you get these pretty pictures
there - so they are very creative.
You just have to be a tall person to really enjoy this.
One other problem is of course
the fact that I mentioned productivity grows. I mentioned relentless
investment in research and development. Now one of the issues that
they do have is of course that India and China are investing
a lot in Human Capital. It's just natural because there is such a
bulge of the younger generation coming through - while in Japan
they are unfortunately dying out. I thought this statistcic might be of
interest - of importance - for where the challenges for all of us are going to be coming
going forward. This looks at the International students in America.
You see the absolute number, of course. I apologise I didn't put
Australia in there, but you see when you look at the actual graduate school
level, that actually 70% of all the Indians are actually
in graduate school. And I personally think they should be
required to do at least 2 PHD's to keep them off the job market
for as long as posible.
Finally on the end. With all this Government debt and
a bad tax system isn't the Yen going to collapse? Well
No. Japan is not Greece.
Japan happens to be the world's 2nd largest
creditor country on Earth. Everyday there is 1.8 billion
more flowing into Japan than
going out. The world owes Japan.
The world borrows from Japan. And in fact when there are the
occasional periods of uncertainty, like this recent worry about the Middle East,
what happens to the Yen? The Yen strengthens because the
Global Financial Community pays back their short term
speculatively loans that they have got from Japan. So I think for all intents and
purposes the Yen is going to remain
a relatively firm currency, particularly if I am right.
and we are going to actually get both a cyclical as well as a
structural recovery in Japan. By the way, the next time you are jet lagged
in your hotel in Tokyo at 3 o'clock in morning, try this.
The yen is the only currency that actually floats on water
Thankyou. (clapping)