We Are Tomodachi Winter 2016

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27which is crucial to the long-term sustainability of the country—and which shows such promise. Just recently, for example, a group in Saitama Prefecture announced a new kind of battery replacing lithium with magnesium, which will reduce the material cost by 96%. There are immense opportunities for a complete overhaul of the energy supply chain. Maintaining MomentumIn the area of tax reform, we have seen the corporate tax brought from 35% down to 29%—a big win. It improves the incentives for companies to invest. There have also been detailed changes in the tax code to encourage R&D to create incentives for better, more efficient investment, which should aid productivity.My view is that the consumption tax hike in 2014 was a mistake that derailed the economic recovery. Since that error, though, the Prime Minister has been very forceful in postponing tax hikes twice. He made it clear to the ministries that the money was not coming in, and instructed them to improve efficiency and cut spending where possible. We now have more discipline in public spending, and Abenomics deserves credit for that.Fiscal spending needs to contribute directly to growth, on either the supply or the demand side. The fiscal package that just passed the Diet is good in this regard, being concentrated in crucial industries: energy, infrastructure, healthcare and daycare. These fields are important for the future of Japan because they are essential for raising productivity.Looking beyond Japan’s borders, the Trans-Pacific Partnership is very significant. TPP will open trade for the entire region. It’s disappointing to see the United States backtracking on its commitment—this is a negative development for the global economy and for global peace. I hope that Japan can step forward and ensure that TPP becomes a robust agreement. Reasons for OptimismWith Abenomics, Japan is using monetary, fiscal, and structural policy in a coordinated fashion. No other country’s economic policy approach is nearly as comprehensive as Japan’s. To my mind, Abenomics is actually just orthodox economics. The theories underpinning it are not new, but the notion that they should come together and work together in a coordinated fashion is a lesson that other countries can learn. Japan has many reasons to be confident about its future. Its political, social, and legal stability is immense. The FSA provides excellent, consistent market regulation. The Japanese people work hard, which is a huge asset. The technology level in the country is very good, with wonderful scientists and engineers everywhere. And if we can get them to interact more, there is an immense amount of pent-up creativity. These are all reasons for optimism that Japan can tackle the challenge of its economic history, keep productivity growing, and remain a top target for the global investment community.Dr. Robert FeldmanChief economist at Morgan Stanley MUFG Securities, where he specializes in Japan’s economy, financial markets, and policy issues. He majored in economics and Japanese studies at Yale University before getting his PhD in economics from the Massachusetts Institute of Technology. His decades of engagement with Japan go back to a year spent in Nagoya as a high school exchange student.

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