 Okay, I would like to start the afternoon session. So can we start? The session right after the lunch is a bit tough one, but we would like to make the exciting economic session. So let's start the economic session. I'm Ipe Fujiwara, professor of macroeconomics here at the ANU and the KO University. And we are really fortunate to have a doctor, Yuri Okina, the chairperson of the Japan Research Institute at the speaker of the economic session at the Japan Naplet 2018. Yuri is one of the most respected economists in Japan and has a deep knowledge of the various economic issues such as financial system, taxation, monetary and fiscal policy, social security, medical things, and even fintech. Okay, namely every important fields in macroeconomics. And as a result, Yuri has been a member of the various government committee, such as the Financial Service Agency Council on financial services and the government tax research specialist commission. So she has been doing so many important jobs. And so therefore, we have the perfect person for the speaker in the economic session to discuss economic challenges in Japan from various perspective. We are also fortunate to have Mr. Jason Macdonald, the chief advisor and the G20 source helper. Am I pronouncing correctly? Sushi. Sushi, okay, so it's a difficult word. Thank you so much. Anyways, it's a really important job, okay? So then I'm going to show up in the Domestic Policy Group of the Department of the Prime Minister and the Cabinet at the discussant in this session. So Jason is one of the most influential policy economists in Australia. I had several chances with Jason to discuss the economic issue and he's always smart and I tend to talk a lot and get lost. Don't understand even what I'm talking about. Jason can interpret what I say in the nicest and the most elaborated manner. So as a result, all I need to say is always, yeah, that's what I mean. So he's a really nice person. So therefore, to conclude up, we have the perfect speaker as well as a perfect discussant in this economic session. So without further ado, so we would like, please join me welcoming Okina san. Ahujawara san, thank you very much for the introduction. My name is Yuri Okina and I am an economist of the Japan Research Institute. So today I would like to make a presentation about Japan's economy and policy issues going forward. So I would like to give you the brief sketch about the Japanese economy now. And then I would like to explain how we are evaluating the abenomics after five years. So this is a process, prospects of Japan's economy. So Japan's economy is recovering moderately and the annual rate of real GDP has been around 1%. And this recovery will continue until next year. It's said to be continued until next year, the year before the Tokyo Olympic Games held in 2000. But there are various risks mainly from abroad such as the protectionist policy of the US and the emerging market contingency risk and so on. And economic recovery is supported by the relatively domestic demand and external demand. And the economic incident index has been rising, reflecting a pickup in production and shipments. These are the growth trends of the exports and the growth trend in exports of capital goods and so on is just continues. And real exports to China or US or the US or Europe and so on has been increasing. So industry production in Japan so moderate increases from these days. But the US protectionist trade policies are now severe concern for Japan's economy. Consumers have spread to Japanese companies with factories in China due to the trade war between the US and China. And Japanese automobile companies who with factories in Mexico or Canada due to revision of the agreement of NAFTA. So we are especially worried about whether automobile tariff for Japanese cars are realized or not. As the automobile industry covers broad range of the fields, there is a list that if the tariff is realized, it will result in downward pressure on production in Japan. So this is a capital investment and thanks to the relatively good environment, corporate earnings have remained strong. So as you can see, reflect in abundant cash flow, capital investment has remained on the moderate upward trend. Private investment are focused mainly in the fields of labor saving against a backdrop of labor shortage and the capacity building corresponding to the digital innovation. So as you can see that rating indicators for business fixed investment is increasing now. And this is an unemployment rate in Japan. As you can see, the unemployment rate stayed at a very, very, very low level, about 2% point or so. And since the beginning of the 2018, the pace of increase in the number of workers, mainly non-regular workers has accelerated. So Japan is said to be a recording in a state of a near full employment, I think. So, and this is a slide of the household consumption. Although wages for non-regular workers are increasing, wages for regular employees are sluggish, increase of the wages of the regular employees are sluggish. But thanks to the improvement, improved employment, that I mentioned, the unemployment rate is very low, household consumption expenditure will remain on a moderate recovery path. But the inflation is subdued at below 1.0% So although Bank of Japan has restored it to monetary easing aggressively for five years, for maybe five years, and consumer prices, this black line increase has been very low, below 1.0% level. So it's about 0.7% or so. So it is one of the big issue in Japan. So let's move on to the evaluation of Abenomics. So five years, almost six years have passed since the Abe administration came to power at the end of 2012. Let us first compare the major economic indicators for the fourth quarter of 2012 and the most recent figures for 2018. Overall, the economy is displaying steady growth. GDP is just from increasing, and GDP gap, its supply and demand gap has been largely eliminated. And unemployment rate, it's 4.3% to 2.2%, so significantly the unemployment rate has reduced. But at the same time, inflation rate is very low. This is, yes, minus 0.1% to 0.7%, and the potential growth rate has barely risen and the ratio of outstanding debt to GDP has increased. It's a very huge amount, I think. So this is a brief sketch of the comparison of the start of Abenomics and now. And as maybe you know that the three arrows of Abenomics, but the three arrows of Abenomics were the policy package of the Abe administration. They were at the old three arrows, this is a 2013, when the administration started, he said that the three arrows are very important. They were a bold monetary policy. It is a 2% inflation target. And quantitative and qualitative easing, QQE is a very important. And the two is a flexible fiscal policy. It's a large-scale public spending. And third is a growth strategy that stimulates private sector investment. Measures including regulatory reform, reform of corporate governance, and reduction of corporate taxes, and so on. In 2015, Abe was elected as the leader of the Liberal Democratic Party's presidential election and positioned the next three years as the second stage of Abenomics. Abe announced the new three arrows for Abenomics, taking up the slogan, a society in which all 100 million people can be active. The new three arrows are a strong economy that produces hope and support for child raising that fosters dreams, and three social security that provides students with a sense of reassurance. In concrete terms, the policy continues to prioritize a growth strategy, but also seeks to hold the decline of the birth rate and create a society that promotes women's involvement in the workforce, looking towards a situation in which no woman needs to believe the workforce in order to provide nursing care to a member of her family. So how do we evaluate Abenomics? I think it is very important to, I'd like to point out the three points. The former, the old three arrows were skewed towards monetary policy, and the growth strategy is producing outcomes, but speed is lacking. And the third one is a very important point that the social security reform is essential. So I'd like to explain about each point. So this is the balance sheet of the Bank of Japan. So the former three arrows of Abenomics commenced with the Bank of Japan's monetary policy. Haruhiko Kuroda announced that policy on his appointment as governor of the Bank of Japan in April 2013, attempting the realization of a 2% inflation target in two years by the radical quantitative, qualitative easing, QQE, including the annual purchase of Japanese government bonds totalling 50 trillion yen per year. As you can see from the chart, the volume of the Bank of Japan's balance sheet is increasing rapidly since 2013. Initially, the new monetary policy had not only decreased interest rates, but also produced weaker end. This result promoted the purchase of Japanese stocks by overseas, mainly by the overseas investors and boosting stock prices. We may say these positive effects improve the profitability of Japanese companies, I think. But these are the trends of the long-term interest rates. So still Bank of Japan failed to boost the inflation rate. Bank of Japan had no choice, but for a further monetary easing with the introduction of a negative short-term rate and yield curve control policy that picked the long-term interest rate to close to zero. Please look to this yield curve control. The long-term rate is almost a zero percentage. However, as I said, even after five years, the inflation rate has not reached 1%. And the value of negative side effects have been generated. The law for long interest rates have dampened the profitability of banks, especially for the regional banks in Japan. And Bank of Japan's peak of long-term rate interest rates around 0% led to a lack of market warnings as debt growth. And this is a ratio of the Bank of Japan asset to GDP. Maybe you can say very, you know that compared with the FRB and the European Central Bank, the Bank of Japan's asset to GDP ratio is very, very large. So considering Japan's worsening fiscal situation and exit from quantitative, qualitative easing is increasing difficult prospect. Let's move on to the growth strategy. The major direction set forth in the growth strategy proposed by the new three RO sub-economics, work, time, reform, flexible working styles, fostering human resources, like university reforms and so on, and reform of corporate governance, introduction of corporate governance code, and support for the innovation in the digital arena, essential initiatives, I think these are the essential initiatives for Japan. And Japan's growth strategy now is just trying to realize the society 5.0. This means ultra smart society using the internet of things or big data or AI and new technology. The world of society 5.0 was originated in Japan. It was originated in Council for Science and Technology Policy in Japan in 2016. And the government says that in the society 5.0 system, people's lives will become more comfortable and sustainable by the technological innovation. As you know that in Germany, industry 4.0 is just mainly focused to the manufacturing industries, but society 5.0 is just focused to the people's lives. So how it is important to the technological innovation improves the lives of the people, especially for the elderly people. Maybe you think that what is society 1.0 and 1.2, 2.0 or 3.0, this is a hunter-gathering society, the society of agriculture. And industrial society. And now we are the information society, society 4.0 and we are going to realize the society 5.0. And as you can see from the red bar in the chart, the productive age population has been shrinking since 2000 and 2000, yeah. And considering the decline of the productive age population, the most important policy issue for Japan is productivity to increase the productivity, I think. So rapid implementation of supply-side reforms urgently needed. So as indicated before by my slide, the potential growth rate figures, initiatives made by Abenomics have not yet led to an increase of the productivity so far. So these are the growth strategy of 2017 and 2018. So a policy decision to focus on five strategy fields like health and longevity, sorry, health and longevity of the people and transportation revolution and fintech and so on. So the policy of promoting digital innovation in the field of such area has been set out, but I think an increase in the highest speed of reform is essential against the background of intensifying international competition. So with outstanding debt to GDP ratio standing at an extremely high level compared with other countries, this is Japan and the US and the four European countries are like this. So this is a very, very high level. So but I think that further advances in fiscal restriction will be inevitable even with an increase in consumption tax scheduled for next year. This figure shows the expenditure and tax revenue of Japan for about 45 years. It is often said in Japan, the shape of this is like a shape of the mouth of crocodile. And total expenditure of the government remains very high level because of the increasing social security spending like Medicare or H2P, healthcare and so on. And the tax revenue is a blue line. And as you can see that's a very low level is continuing and now just a little bit increasing. And this increases is due to the increase of corporate and income tax after the Abenomics and also the consumption tax hike in 2015. As I said that the social security expenditure is very high and considering the demographic change maybe Akiyama sensei will present next session but let me see the trend in population composition by age group. But it is said that from 2002, 2005, Japan will become a super aged society. Let me look to the red line. And this is the ratio of 75 and above population. So from the two thousand to 25, this ratio is increasing dramatically. So we think that we have to prepare for the super aged society as soon as possible I think. And this is a chance in the consumption of fiscal expenditure from 1960 to 2018. And so I think that of particular importance is control increase in social security. This position is composition is very large nowadays. And social security related expenditure are 33 trillion yen and accounting for about if we amidst the national debt service and so on, the accounting for 55% of the general expenditure in 2018 budget. So increasing the healthy life expectancy and boosting the efficiency of the medical care provision through better coordination of medical data priorities I think. In addition, it will be essential to control medical and elderly nursing care related public expenditure in diverse areas while maintaining health insurance for all students. So it is very difficult task for Japan I think. So as you can see from this left chart shows that the supply of the caregivers for the old people will run short. It's a third of the super aged super old age year. It's 37,000 people are projected to be lacking. And the results of the service concerning social security shows that about 93 percentage point of respondents feel anxiety strongly or to some extent to feel anxiety is represented 93% regarding the future sustainability of the social security system. So I think eliminating the anxiety about the future that Japanese students are experiencing and will surely benefit the growth of the Japanese economy and its society. Thank you very much indeed. Thank you very much, Okina-san. So now it seems like a very difficult to find a peak in the future in the Japanese economy. But so we would like to have the comments and the questions from Jason. So could you start? Yes, thanks very much for inviting me here. And it's a real privilege to be at this event with such distinguished economists around me and I want to say thank you very much to Shiro as well. One of the reasons why it's such a privilege is the Japanese economy is so unique and so interesting that I think if you love economics at some point you'll spend a bit of time thinking about the Japanese economy. I studied at university in the 90s, it's history and it's been with me as an interest ever since. And you do get a lot of the world's great economists looking at it, you know, Benenki obviously has had a bit of interest in Krugman and others. Yuri's presentation was so comprehensive and so good when I asked someone on my team to have a look and give me some comments that I could make. They came back and said they didn't have any criticism so what you're about to hear are my scattered thoughts. One of the really interesting things in the presentation was the size of Japan's debt and this has been a big debate in economics for many years. Exactly how much debt can one country have? What is the limits of fiscal sustainability and what creates those limits? And it's particularly interesting at the current time when you see countries with much lower levels of debt, much lower deficits and much younger populations suffering more because of their fiscal situation than Japan appears to be. And it seems to have something to do with the fact that Japan's debt or any country's financial stability, fiscal sustainability, is linked to whether their debt is issued in their own currency or a foreign currency. If it's issued in your own currency then it's much more stable and sustainable through time. Also if you've got a higher savings rate and the third one is a very sound financial sector. So those three things are clearly in Japan's favor when going to markets to ask people to finance their government deficit. Some other things that are interesting about the Japanese economy is that when we think about its growth rate we really have to think about the size of the inputs that are going into it. So while we might think a 1% growth rate is quite low, it's not low given the size of the Japanese working age population, the declining working age population. So in the sense of what it's potential is, Japan's economy and its economic performance has been quite remarkable recently. There is obviously risks around net exports with such a country so tuned into the global trading system as Japan and net exports have been providing a boost and not for obvious reasons that is a risk going forward. Another risk that's kind of more structural is potentially the fact that modern supply chains international trade is two thirds investment goods traded across borders. So the goods that are travelling across borders are those goods which are used in other business production in other countries. And where the global economy seems to be going with new technology is a reduction in the size of the capital needed to produce things. So a question I guess I've got in my mind and have had for a while is the new technology going to improve the efficiency of capital so much that a lot of these transport goods won't be needed and you can actually see that in the trade data at the moment with services becoming a larger share of global trade. And one other, I've got a few more. Another interesting thing from the presentation is the Japanese labour market. The rapid and rise of women in the workforce in particular. This seems to be associated with the shift to an informal labour market and rising informality and the bifurcation in the Japanese labour market between the old formal jobs for life and then the new economy. And a question I guess another one is is new technology somehow behind that? We're seeing a rise of new technology disintermediating firms making it easier for more marginalised workers to get into the labour market, making it easier for women to match what they sometimes consider to be their responsibilities in the home with employment as well. So new technology may be part of this structural adjustment. And the policy issue I guess is how should we respond? Should we be, well not we, should Japan be facilitating that? Maybe applying some of the same kind of flexibility to the formal labour market or trying to provide some additional protections in the informal part. Now the really big issue that has fascinated people for the last few years, Manashi policy. And the real question, why is inflation so low? Despite what is in world terms almost unprecedented loosening through the QQE. One reason potentially is that Manashi policy has avoided, the expansion in the purchases by the Bank of Japan has avoided debt denominated in foreign currencies. So they've been trying to avoid any direct impact on the yen, possibly to avoid perceptions that they may be trying to manipulate the currency, but normally that mechanism, that transmission mechanism through extraordinary Manashi policies, is one of the key ones which is used to drive growth and inflation pressures in a country. We think about the purchase of the bonds, it is operating on the risk premium, it is changing inflation expectations, and then the third sort of mechanism for those kind of interventions is on the exchange rate. Another reason why inflation might be too low, according to the government's policy, is that even though the output gap is gone by the numbers, that's an assessment of where we think the capacity of the Japanese economy is. New technology may be changing things in ways which are different going forward. So the supply that's of potential in the Japanese economy may be larger than we thought in the past. Normally, economists tend to think that the supply capacity in economy, you see it when you see it, that's when inflation starts to take off. So in one sense, we haven't reached the output, and this is a general view around many advanced countries, we haven't reached the point at which output gap is disappeared because inflation hasn't taken off. Another one is that inflation expectations seem to be incredibly well anchored, and that has meant that it has been difficult, despite quite significant interventions, to get inflation up. Now, Ben Bernanke has suggested not long ago that what might be needed is a coordinated fiscal and monetary expansion to get inflation up, and I have a personal view on that. It's outside my both skill and understanding, but there are two reasons I can see why governments might want to get inflation up in the current situation that Japan's in. One is that inflation actually acts a bit like a... It improves fiscal sustainability because it fundamentally improves the tax returns because most of the tax base is linked to nominal income. It also reduces the real value of the existing stock of debt, and it's hard to underestimate the size of that impact. It is not trivial. So the existing stock of debt in real terms when you repay it is less if your inflation rate going forward is double, which is what the government's after. So it improves fiscal sustainability inflation. Another one that Ben Bernanke argues is that potentially the equilibrium interest rate in Japan consistent with full employment is negative, the real interest rate. And the only way to get a negative real interest rate when you've got a zero-low bound is to have inflation. So you might need inflation to get closer to full employment. I guess I should finish up these sort of random thoughts. One more observation on the supply side. As an economist, supply side reforms are always good. It's the long-run way of improving well-being for the populations that we care about. One of the things I've got from your slides, though, is this real question in my head. Does an aging population make it easier or harder to politically to do reforms? Some of the traditional areas that people talk about in Japan's economy, which could release resources to the other parts of it include the retail sector and agriculture, is reform going forward, going to be easier with fewer workers in those areas or harder given their age? I noticed that older workers become less productive. I wonder whether they become more radical in their views about supply-side economic reform. So with those sort of comments, I've got four sort of questions for you, Yuri, if you don't mind. You don't have to answer to your comments. OK, so you already have a million, 10 comments. Oh, well, maybe, I feel like I'm taking an English exam next. Sorry. Yes. I think it was something that I missed. It was already 10 or something. I apologise. Just a comment. Please, I think, yes. There's so many comments. Thank you very much indeed. It's a very, very... Otherwise we won't forget that. Yes, yes, it's a very, very, you know, suggestive comment for Japanese economy, all the comments. And, yeah, sustainability of the debt, it's a very, very severe issue for the plan. But to date, that's, you know, that JJB has been financed by the 90% from the domestic market, and also the Bank of Japan, you know, just to control the long-term interest rate. And also, yeah, these two points are very important to be studied as interest rates. But I think that, you know, in the era of the elderly people are going to increase, the saving rate of Japan is decreasing. And I think that JJB buyers are going to be more from domestic to foreign countries. So it is very severe. It is a very, you know, more just a little bit nervous for the situation in the future. So Japan has to, you know, to struggle with the debt problem, fiscal debt problem in the long term, I think. And about the labor force, I think the new technology is helping to the women to attend the workforce, as you said, I think. Today, in Japan, Terry's work is just a little bit wider, especially in the listed companies or so. And also, the administration says that, as I said, that has a woman can continue the works. And the social help for the child care or elderly healthcare is very important. So this is a core, one of the core of the new epidemics. So, and also the government has set a goal to raise a proportion of women in leadership position to about 30% by 2020. Of course, most companies are unlikely to achieve their goals. But the labor shortage is just to, you know, encourage the women to enter the working market and also the new technology support this tendency, I think. And... Can I interrupt a little bit? So maybe there's so many questions now. Oh, yes. You need some time to think. I may talk a little bit about something nonsense. But I think your point about the new technology and labor market is really interesting topic. And it's really related to the, you know, how the aging society is more, more promoting the reform and so on. That's really interesting point. So that it depends on the technology. So that because, you know, we really know, as you mentioned that the working age population is shrinking. So the GDP is smaller, but it's not the end of the story because there's too many people. So we need to have maintained the consumption, you know, kind of the level of the life standard. So that, yeah, I think, you know, lots of people thinks, you know, all the people don't like the new technology, but maybe in Japan, you know, because the new technology may help Japan. So that may be helping the, the shortage of the, you know, maybe the prime age working people. So that, especially I talk with Okinawa-san. So it's interesting thing is that I'm not quite sure whether FinTech is really helping the older people, but now Japan is one of the most of these, the greatest country in FinTech or something like that. But lots of new, you know, FinTech firms are getting here. So that people tend to, maybe the Japanese government would like to follow what has been done in the past. But if it's really new, new technology, there's no history. So they may be able to accept rather easily, especially that kind of technology can help the shortage of the, maybe the working age population or something. Do you agree to that? Yes, I think so. Of course, there's some integration for the FinTechs, but as for open API or something like that, to connect FinTech companies to banks, it's a very, very early country in the world to make it easier to connect each other by using the open API technology. And also, just we are preparing the sandbox for not only the FinTech companies, but also the companies that want to use new technology, but the regulation is very great. But I think the Australia has already had sandbox, a great sandbox, I think. So yeah, Japan is very eager to promote this innovation. Yeah, so that truly the existing kind of things, like existing regulation, maybe Japan is really stubborn country and rather hesitant to accept the new ideas, but for new technology, and especially that in facing this massive Asian, maybe Japan can be the country which accept the new technology. And the sugar would like to, you wanna say something or? I have a question when you have it. Okay, not yet, not yet. So there's so many questions. Not yet, okay. So definitely I'll come back. And of course I'll come back to your questions. And you have four questions. Yeah, right. So now the time to go for questions or maybe you're all right. Maybe you have it. Yeah, let's have a conversation. Yeah, right. Do you want me to, those four questions that? Yeah, or yeah, let's go to the question, okay. So these are the completely unprompted ones. So why don't wages increase in Japan? Why don't wages increase in Japan? Ah, wages does not really increase because so many part-timers are increasing in the labor market. So as you know that Japan has an, Japan's unemployment rate is very low. And that's many elderly people and many women coming into the labor market. And also the foreign workers are just coming, these days very large amount of labor, foreign labor's are coming in from Vietnam or Nepal or Philippines and so on. And they are working as a technical training, technical intern training as the qualification. And also they are just students to take a part-time job. And the labor shortage is just a little bit, not so tight, but wage level is not so high. And also I think that many companies are very unconscious about to raise the wages of the regular workers because of the anxiety of the future prospect of the business environment. Yeah, maybe if you don't know much about the Japanese economy, think about the economy. 2% unemployment rate, it's really low. So if you want to get the job, 100 people would like to get the job, 98 people can get the job, but the still wage is not increasing. So it's really puzzled. But you think that you said that because the increase in the part-time or maybe increase in the foreign workers, but will they continue forever? Or in the sometime in the future, do you think wage increase or maybe we're gonna continue this kind of situation for foreseeable future? I would like to know because we can say in the end it's increased, but we would like to win. If it's 20 years later or 30 years, it doesn't make any sense. But do you have any kind of estimate? I'm sorry, it's really difficult to tell, but I want to have some clear figure about that kind of thing. I have not just examined when the wage increases. Yeah, of course, of course, yeah. But I think, I think that which persistence rate of the women are very much increasing these days. And also the elderly people, of course, began to participate in the labor market, but the volume is not so much compared with the labor shortage. So I think that wage is increasing in the future, maybe in five years or four years or something like that. That's not necessarily mean the good news, because if people wanted to have an increase in the wage, that's gonna increase in inflation rate, but that may increase inflation higher and maybe the government debt problem may be larger. So I think in the future, when wage really increases, should be a very important issue. We cannot take it as a good signal or, yeah. I think so. So until at that time, we are still agreeing with that supply-side reform or fiscal reform and so on. So I mean, in the long run, wage is a link to labor productivity. Okay. But in the short run, and this seems to be not only Japan, but other countries, advanced countries as well, where wages have been suppressed and the good thing about being an economist is you can use the same framework in different countries and just tell the same story but in slightly different ways. We are just the full number. There is something about the augmented labor supply curve here where we've thought the labor supply curve was in one position and it looks like, whether it's because workers are coming back into the labor force from family life or older workers are working longer, whether it's the supply of migrant workers, whether it's something about technology, helping workers sort themselves or do jobs, people with disabilities, et cetera, do jobs that wouldn't have been ever done before. The supply side of the economy seems more robust. In advanced countries, then we probably gave it credit for before this happened. Yeah, and especially so that I've interrupted too much, but transportation technology, information technology would be very interesting. What is the nightmare about the Japanese life is commuting. It's torture, two hours of the congested train. So if the thanks to the information technology or somehow the maybe right, maybe not have to be a 1,000 kilogram car but the right car for one person or something, then if we can commute much more nicely, maybe we can increase the productivity or something so that that's definitely related to the supply kind of thing. So again, it's related to the new technology kind of thing. There's one more major effect, which is if workers are being shaken out of one part of the labor market and then they might move skill bias technology change, they might be moving down into the lower parts of the labor market to do jobs which they previously weren't trained for and again pushing down wages in those parts. So the income distribution may be changing even though the employment may not be. Yeah, especially then this is something we discussed with somebody I forgot but maybe new technology, gain from the new technology rather concentrating on a smaller number of the person, maybe the average wage is going down so only the one incredibly rich people and others are poor. So yeah, that kind of issue must be also important for the wage dynamics in the long run. Yeah. Right. Any more questions? Yeah, please, please. How are regional banks and others managing in a zero interest rate environment? Yes, I think that there are many regional banks in Japan and as well as three mega banks like Mitsubishi and Mizuho and these regional banks are not diversified like mega banks and the weight of fee income is very small. So therefore if the zero interest rate continues and long run interest rate is zero, they cannot earn interest. So as Mr. Philip Low, is the governor of the Australian Reserve Bank, says that in July that an environment characterised by low for long interest rate and may dampen the profitability of the strength of financial firms and could change firms' incentive to take risks which endanger additional financial sector vulnerabilities. This perception is exactly the case in Japan, I think. So we must monitor carefully to the financial market, I think. And especially the regional bank issues related to the government debt problem, you know, there are investment opportunities for government debt. So it's true that lots of people think that 90% of the JGB is held by Japanese so it's just a distribution program within Japan. But it's a significant portion of the JGB is held by the regional banks so it may relate it to the financial crisis. So then we know that everybody knows that the financial crisis can have a severe consequences. So yeah, I think that's gonna happen to the regional banking system. I'm not an expert on the banking system but that's also one of the big issue, how we can proceed with reform in our regional banks. Because some countries have had negative interest rates and have managed it okay. I'm just wondering why Japan, I mean it's just a question why Japan might be a bit more sort of averse to others. I think that some banks in Denmark or Sweden sets deposit interest rate for large customers to negate. So they can earn their interest. The banks themselves can earn interest. But Japan, it is very difficult to set the deposit rate to negative. So it is very, very unpopular policies about strategy for banks. But as you know, so that even we call it's a negative interest policy but it's not a real negative interest policy because there's a convenience here. So that if we make a deposit but the interest rate is 0.1, do you wanna get everything in a cash? No, it's okay to keep it. So that's a zero interest policy. So that I believe by definition it shouldn't have a huge impact on the macroeconomy because why we can maintain that zero nominal interest because it doesn't change the behavior of the macroeconomic agent. So that it's just a tiny thing. But in Japan, as Okinawan-san said that somehow the banks cannot change the deposit rate negative or you know, therefore it's just a shrinking in a margin. So therefore the lots of banks are against about the negative interest policy. So one more? Absolutely, one more, two more, three more. Yeah. And this is a political question. Will the consumption tax be raised from 8% to 10% in September 2019? I think that upcoming consumption tax will go up next autumn I think, as expected. As you know that the current consumption tax is 8% in Japan. And it is planned to raise it to 10% next year. And last time Abesan raised the consumption tax from 5% to 8% in 2014. And Abesan was criticized by the, from the low income sector people that it was very huge impact for the income. At the same time health insurance premiums also raised at the same time. So it is said that consumption in Japan is just a little bit affected by the hike of the consumption tax. However, this time the range of the increase is 2% from 8% to 10% and so we think that it will be possible to avoid a large consumption deterioration I think. Yeah, but I think you're the expert. So according to Gary is one of the greatest macroeconomists he has done the research on the Japanese. How much the consumption tax to increase to sustain to have 30% you know, so it's not just about 8% kind of thing, so but, oh yeah of course I'm sorry son. Yeah. I totally agree with you. Yeah, yeah. Let's come back to. But 10% is very insufficient. That's right, but still we are struggling to raise that kind of thing. And I'll come back to that depressing 30% number later. Okay, so of course there's so many issues to discuss and not that much clear solution so that you'd like to have some questions from the floor. It's a nice chance to have a, yeah, so yeah. This is an extension of a question answered by Mr. McDonald but towards I'm sorry if I mispronounced the names. Mrs. Okinawa and. Okinawa, not Okinawa, Okinawa. Oh. And Professor Fujiwara. Did I pronounce that right? Perfect, thank you. Fantastic. In 2013 if you recall the GDP, I mean, depth to GDP ratio for Greece was about 177%. The GDP, the depth to GDP ratio in Japan in 2018 is around about 240%. In your opinions, what do you think is preventing a financial crisis from happening and a default on, not necessarily default on debt but from the debt bubble bursting? I think, thank you very much for the question. The government said that primary balance, do you know that primary balance is just expenditure and just expenditure and tax balance is going to be balanced in 2025? And from that timing, the government said the GDP, debt to GDP ratio will just going to be decreasing. So if the government can do such a very difficult task to cut the expenditure and to increase the tax and also to make the gross strategy successful maybe it's a very narrow path but maybe Japan can survive with very huge debt, I think. Can I join you a little bit? So what is the difficult thing in economics? It's always about the expectations. So that's long as somehow the government do something in the future. If you believe that, that's totally okay. But with we can really believe that's also an issue. And also, I think Okinawa-san implicitly showed in the figures, that's a gross debt. I said lots of JGBs are held by the governmental institution so that in net it's like 100 something. So it's gonna be significantly lower. So that maybe still we can say it's marginally lower than the Greece things. And also the difference between the Greece and Japan is that Japan is still the country with the highest net foreign asset. We are not borrowing from the foreign country. So that of course it doesn't matter. It's a really difficult question but usually the crisis coming from the foreign investors, foreign investors cannot believe the foreign country then they try to sell the debt or something like that. So the Japanese situation is a little bit different but I'm not totally answer to your question but maybe I totally agree to Okinawa-san. It's about expectation, about the future consolidation. So the credibility of the government is... Do we have a... Yeah, yeah. Yeah. Yeah, yeah, yes, of course. Yes, of course. We need to go back to Japan. There is some math involved too. So it's basic debt dynamics. Is the growth rate of the economy gonna be higher than the interest rate payments when your interest payments start to get higher? That's when markets will realise that you're in a bit of trouble and that's why those three things that I mentioned at the start are so important because they're the things that keep the interest rates low relative to the growth rate and it is also why the supply side of the economy is fundamentally the answer to the problem because you've got to get growth up. And Greece was in... Greece didn't have those characteristics I mentioned at the beginning. They had their debt denominated in a currency which wasn't their own for starters. Yeah, so it's you all. Thanks. So I just want to come in on a couple of those issues you left off on. I've enjoyed the conversation a lot but about government credibility and reform credibility because Okinawan showed quite nicely to three arrows in 2013, the three new arrows in society 5.0. Now, the first three arrows seem to make sense only if you undertake the third arrow structural reform, the supply side reforms which you've been talking about. Now, I think the first arrow is quite easy. Just tell the bank of Japan to effectively print more money. Second arrow is easy, government can spend money, that's fine and delay consumption tax increase. But the third arrow is the key arrow to lift the potential and the productivity and the potential of the economy. Instead of succeeding on that, I know there was a little bit of progress, move to the three new arrows which seem like part of the third, part of the supply side reforms and they're important but you sort of, you know, it's great PR for other, marketing has been fantastic, you know, every few years roll out a new strategy. But even on these, I think there's been pretty minor progress, pretty marginal progress, there's still shortage of childcare in some places which is unimaginable given you've got a shrinking cohort of children and babies and social security reforms that are so important, just haven't been undertaken. But it seems all the solutions now that are being talked about are technology related and some of the problems are gonna be addressed by technology but there are some pretty obvious big reforms that should be undertaken surely and the government's sort of committed to. Now the unemployment rate is 2%, it's very low but that is people looking for jobs who can find jobs. There are pretty big distortions, tax distortions, disincentives for spouses and it's usually women to work more than, what is it, about 13,000 Australian dollars a year. That seems like a ridiculous tax cliff that is keeping women out of the workforce when they wanna work more and that's an obvious one. The childcare shortage is another obvious reform. There seem to be some fairly obvious reforms that are holding the economy back given the big headwinds you're seeing with the demographic change. I guess my question is, is the government doing enough on these supply side reforms or are we just getting by, the debt continues to build, maybe you don't default on the debt but you get out of it with rapid, very, very high inflation eventually and very disruptive. I just can't see this sustaining, this situation sustaining without more reforms that actually take political, expend political capital. Yeah. As for the regulatory reform because I have been working for the regulatory reform commission for many years, in the easing of regulation in the fields of such as agriculture or medicine, initially made a progression in the first era of the administration, I think. Maybe you are thinking of the Japanese agriculture cooperatives, a very, very strong political power in Japan. But the administration at the first time tackled with agriculture cooperation at that time and to pursue the reform in the agriculture fields. And also the Japanese doctors association is very, have a very big power but they are very corporate, they are in cooperation with administration because administration has a political power at the first time. So it depends in the future, it depends on the power of the administration, I think. Maybe I think the Abe-san was one of the most, one of the prime ministers that struggle with reform in 10 years or so, I think. But it depends on the political position and political power, I think. So is this a... Yeah, can I join you a little bit? I think it's related to, again, Jason's the final point about the supply side reform and aging society. So that, you know, thinking about aging society and given the fact, older people tend to go to the voting more than the younger people. They are more older people. And if the older people are happy with the current regime, then they don't have to think about the fiscal reform in the future and they want to have a right, they would like to maintain the right to go to the doctor anytime to meet a friend. So then I think, just thinking about the policy, the politicians, rational behavior. I'm not saying it's rational, simply the rationality of them is to win. Okay, then for that kind of things, maybe the dark side of the Jason's comment in the aging society may prevent the reforms. But quite new things, you know, maybe there's some new things maybe we may adapt more so that we are hoping some new technology which we are not anticipating at the moment will change the world or something. So I mean, as a policy economist who works for government, no government ever does enough economic reform. But I mean, sometimes we don't give enough credit to just good stable macro policy and a market disposition in the government because market economies change and adapt regardless almost of what governments choose to do. So I suspect that Japan, like Australia and in the United States will have reform thrust upon it through things like technological change which can jump borders and jump regulation despite governments choosing not to reform or not. And so the dynamism of the market economy can somehow sometimes solve these problems when more coordinated actions by governments can't. But a good example would be the lift in the women's participation rate in Japan which seemed to be unexpected to many. We now got a higher participation rate in the United States and equal to Australia's and I'm not sure that came from coordinated government policy but just came because of the market wanting it. I think it is very lucky for Japan because the labor shortage is very severe. So the new technology is very, very easy to introduce in the society I think. It's a very, not so. So in our maybe economics terminology, if the technology is a palette improving, that makes everybody happy. So then that kind of technology can be, maybe surprised that reform can be accepted rather easily but then maybe policy which may increase the majority of the welfare but somebody's got the miserable, then that kind of policy may not be very easy to be accepted I think so, yeah. But yeah. Yeah. Hey, just have a quick question for Mr. Yuri. First of all, thank you for the presentation. It was very comprehensive. My first question was, I guess, we mentioned a number of times the labor shortage in Japan in the near future Japan will become a super aged country. I'm just wondering are there's different solutions? For example, we can see more women in the workplace or technology can take apart. Just wondering would Japan consider a policy open for migration from other countries? That's the first question. Yeah, my second one would be, I think Japanese people work really hard and then some people they tend to work long hours. I'm just wondering would those long actual hours that people work in Japan reflect in GDP or is there any contribution into the total economy in Japan? So I think the first one is immigration. Could you let me know the second one so it's working long and of course it's not so good working wrong with... No, I mean a lot of Japanese people, they work long hours. I have come across different people or companies. I'm just wondering those actual hours that people worked in Japan would those actual effort will be reflected into the total GDP or contribute to the total economy as a whole Japan economy? So the second one is a bit the measurement issue may not be very easy to understand. But I'm very focused on the first one. The first one is how do you think I think about immigration policy? Yeah, I think would Japan consider that policy? Yeah, it is a very official position of the Japanese government that immigration which means that by definition increasing permanent immigrants policy has not done in Japan. But however, temporary foreign workers are increasing very much. Currently there are 1.2 million foreign workers and 600,000 people and more has been increasing these five years. So in Japan as I said employment rate is very low and the productive age population is drastically decreasing. So, especially remarkable labor shortage can be found in elderly nursing care and retail manufacturing and agriculture and so on maybe almost all the interests but especially in these fields very much have the very much shortage. So, as I said that many of the acceptance of present simple labor qualification of training, technical intern trainees and with learning skills in Japan and making it useful by returning home country and not just for the labor shortage but to make the cooperation with international and international cooperation. And also besides that there are quite a lot of people who can work as foreign students and work part time. So together these two genres it reaches about 500,000 people. So, at this situation, the administration said in this June that the labor shortage cannot be resolved. So the government decided to establish new qualification and the study is currently underway. And the extension of workable period from five years to 10 years or increase of the industries that can employ foreign workers is being studied. But the government said that they do not change the so-called immigration policy is not the solution just to accept foreign workers more. But there are so many discussions now and maybe in autumn there are some discussions in dietizing. Regarding your second question, so your question reminds me of the very famous book in the 1990s. So there's a book by the World Bank called the East Asian Miracle. And lots of people thought that there's a miracle kind of things happening in East Asian but some macroeconomists pointed out it's just due to the longer working hours. Okay, so therefore of course if you believe in a simple model longer working hours increase the GDP. But it's a problem at the moment is not that just working is not enough because in a catching up economy when you know what to do you just follow what the following for frontier countries are doing. Working longer hours may increase your efficiency but now what is needed is a more creativity creating something new. So that it's a conceptual issue so that maybe they're working too many hours may reduce your productivity then it may have a negative impact to the output. But simply if you believe in a constant productivity then increase in working hours should increase in GDP and that should have contributed to the high GDP in Japan in the past for sure, right? Yeah, so GDP doesn't include an adjustment for the hours work it's just the market value of all output in economy the market value of the output measures of labor productivity conceptually should adjust for it because that's the amount of inputs that go into producing it but all of the measures you ever use you need to look at carefully because the shift from women participation into the workforce will be moving out of unmeasured home production into market production which will be boosting GDP as well. So whenever you're looking at your numbers you need to think about what's actually going on and what exactly they are measuring. Yeah, and also I can add one more important thing so that there's a concept called home production so in Japan lots of housewives are preparing for the dinner so that that's definitely increasing your utility. So for example, if you want to increase the GDP in Japan ask your wife to work for the neighbors and get the money I think then we can increase GDP but it doesn't change the welfare. I think there's so many kind of things maybe related to the working hours. Yes, I think so. Yeah. Okay, so get you doing a book? Yeah, yeah. I was gonna actually ask the question about the debt that the kinds of things I would have said were said but I'm still, let's go a little further on this expectation idea. So here's the situation. You know, Japan has a debt to output ratio, debt to GDP ratio that's extremely high and they're selling JGBs at a very low discount which would seem to imply people don't expect there to be default. They don't expect high inflation and have that disappearing. You're talking about the regional banks are holding these things in large numbers presumably in counterparted deposits from their liabilities. And so why are these regarded as so safe? I mean, the idea that Japan could have a growth miracle is a very, certainly not a certain event and so why does it sell at such a low discount? And we're asking about Greece. Well, Greek debt was held by Germans. Japanese debt is held by Japanese. So it must be hedging, so the alternative is you have those two big parts of the budget, you know, the servicing of the debt and the social security. One of those are the two big things as one of those has to go. Well, if one goes, I mean, maybe these are, you know, so I have savings in the form of JGBs. But those are safe. Then they reduce, they raise my taxes and they reduce my social security and healthcare benefits when I get old. I'm good. If the JGBs default, well, then I have, then they're gonna give me my social security. Do you think, is there any evidence? I don't know enough about Japan. Is there any evidence that that may be how people are thinking, I guess is my question. Yeah. So if you're buying, if your debt is denominated in your own currency and your future retirement is on goods, which are also gonna be in that currency, then maybe if there is a bit of inflate, you still get a denominable value back, even though the real value may have fallen. That might give you confidence to go and buy it. Particularly relative to other things you can invest in. If you wanna invest in US bonds, you've got the exchange rate risk that you might be worried about. So the domestic side, it's kind of rational, in one sense, for the domestic savers to get, despite all the returns that are high everywhere else in the world, to go and buy those bonds, knowing that at some point in the future they wanna get that yen back and to buy domestic goods and services in retirement. And if the normal value is the same, great. And if the real value is fallen, I think it's kind of rational at that level, which is Yuri's point, when savers start to get old and there's not as many of them and they're running down their savings, the marginal investor becomes the foreigner, that's when the issue properly presents itself. And can I add that, maybe add that, because you are the general equivalent macroeconomist, but a little bit partial explanation, so why still the people investing in the JGB? I think thinking about the three recession after 1990s, it's always coming with yen's appreciation. So somehow Japan has the biggest country with the biggest net phone in assets. So when the global economy is in recession, Japanese yen tend to appreciate. So the falling investment is really, really risky investment. yen return becomes really low in the recession. So somehow we knew that kind of thing from the three experiences, and even the burst of the bubble, yen appreciated. Even after the great earthquake, yen appreciated. It's really crazy, because earthquakes happened in Japan, that's a risk to the global economy, so yen appreciated. So somehow it's a bit irony, but of course, thinking about the shrinking population, we should do efficient foreign investment, that is necessary, but thinking about the risk and the return, so the foreign investment is tend to be a really risky investment, yeah. Okay, so maybe Okie first, yeah. I'm Tatsuyoshi Okimoto from ANU. So I'd like to come back to consumption tax hike. So I was very glad to hear Okina-san is not worried about too much, but I still have a small concern. But you are not living in Japan anymore. Yeah. Actually, that's my point, yeah. So I moved from Japan to Australia in 2014, so I've never experienced inflation in Japan, and I did experience inflation here, and I don't like it, I hate it. So you don't like inflation? Yeah. So I do believe for many young people in Japan never experienced inflation, and consumption tax hike is the only occasion they experience inflation. So I'm expecting they really hate it. So that's the one of the reasons I have some concern. I also, you know, investment related to the Olympic Games will be disappeared. So that brought me another concern. So my question is, what's the quickest things or quickest policy the government do for the next couple of years? Oh, yeah, I see. So for the consumption tax and Olympic things, I see. I think that inflation, I don't like inflation too, but I think inflation, I think these 20 or 30 years, almost all the world economy has not experienced, not so huge in advanced countries, not experienced huge inflation, but to experience a very large financial crisis. So maybe the people's welfare was very, you know, against that kind of financial crisis. So we just forget how the harmful inflation is in Japan, I think. And I think that the government will doing some stimulus by the financial expenditure, I think at the timing of the raise of the consumption tax, I think. But I think it is inevitable, but I hope that this expenditure will use the very appropriate uses for the Japanese, you know, growth, I think. And after Olympic Games, it is a very, there are not so many events in Japan, maybe Tokyo Olympics. Don't forget the rugby. Yeah, yes. This is Australian, so there's a rugby World Cup next. Yes, yes. But there is not so many events. And I think digital innovation is one of the important issue that Japanese companies and Japanese society will use to improve the productivity of the Japanese economy, I think. So I'm probably a bit different in the sense that I don't mind a bit of inflation in the normal New Keynesian kind of models where there's downward nominal wage rigidity. A little bit of inflation helps structural adjustment because real wages can be reduced without anyone doing anything in those parts of the economy that need to shrink and nominal wage gains can be higher in those parts of the economy and therefore real wage gains can be higher in those parts of the economy where you do want more productive workers. So a little bit of inflation helps that structural adjustment process without politicians having to close down certain industries and open up other ones. So that's one positive about it. The other one is the increase in the GST will, in present value terms, fundamentally improve the fiscal position of Japan. And a 2% or one-off increase in the price level of 2%. We roughly did that in Australia when we introduced our GST in 2000 and we sailed through it without an issue. But it does reduce the real value of the outstanding debt. The last thing I'll say is these questions about when to change major changes to the tax system are differently answered for macro positions depending on your macro position. And Japan is closer to full employment. And so the kind of what's the impact on expectations might be different to what it was in the previous increase, which many economists think was a bit of a problem. OK, so we have about one question. Do you have any more? So we'd like to have one more question or something. OK, so this is a final question. Yeah. Thank you very much. I'm on it. I'm Joel Rathas from The Treasury. Thank you very much for the panel. I have a question about fiscal and monetary policy. It's actually two questions, but they're very similar. So we've talked about Japan's consumption tax being scheduled to increase from 8% to 10% next year. And let's assume that that's what happens, that it doesn't get postponed, which has happened in the past. And you mentioned before Japan's fiscal strategy of getting to a primary balance. It's balanced by 2025. So there's an imperative to raise this tax, or a tax. So Yuri, or Okina-san, imagine you're the governor of the Bank of Japan, and you've had to already sort of let the rate around the 10-year bond, the range, move from 0.1% to 0.2%, so sort of maybe allowing a little bit higher, because there's pressure in your financial system, these regional banks that we talked about, and also you can look at the United States, and you can see their trajectory. All right, so you can see maybe you've got a bit of tightening that you've maybe tried to do there. And at the same time, next year, you're seeing a negative fiscal impulse. As an economist, what is it that you're going to do? Do you want to keep that path of normalization, or sort of slow normalization that's outlined in the Bank of Japan's current statement of monetary policy? How would you approach managing that negative fiscal impulse? And two, this is the second but related question. Imagine specifically you're Haruhiku Kuroda, and you've been reconfirmed. Prime Minister Abe is still the prime minister. You've known this man for 10 years, the long time of working relationship. In that circumstance, what would you do? Would you think about doing anything differently, because you might be able to leverage that relationship, have a closer coordination between fiscal and monetary policy than might be possible in other parts of the world? And if you've the time, a comment on growth, impacts on growth. Thanks very much. Thank you very much for your question. It is a very good question. Thank you so much. I think that the inflation rate will not so reach 2% maybe not in a few years, I think. Maybe it takes, I don't know exactly, but it takes four or five years, I think. So maybe I think it is a very, very slow speed to pick up the long-term interest rate to the normal position, I think. So it is a very important period for Japan in that period that the structural reform must be done, and also the fiscal deficit cut or something like that is very important to be done in that period, I think. So maybe these four or five years is very, very important when the Bank of Japan can control the long-term interest rate a little bit later compared with the normal level, I think. And as for the second point, Abe-san and Kuroda-san is a very good relationship. And Abe-san is maybe, I think, have a very good confidence with Kuroda-san's monetary policy. But Kuroda-san is, from the viewpoint of the Kuroda-san, I think he is very anxious about the speed of the fiscal reconstruction and also the structural reconstruction. So I think that Kuroda-san is just a little bit very severe position compared with the first Abe administration, I think. OK, so time is up. And I thank you very much for your active participation. Please join me in thanking Yuli and the guests for the fantastic presentation.